Refund Anticipation Loans

There has been interesting news in the tax preparation world this week. The Office of the Controller of the Currency (OCC) announced on Christmas Eve that it was directing HSBC Bank not to fund any refund anticipation loans for H & R Block in 2011. Accordingly HSBC cancelled their contract with HRB, leaving Block without a provider for the coming tax season.

Since the ability to provide refund anticipation loans (RAL) to tax clients was a major marketing tool for Block, this is considered a body blow to the company. Shares of HRB dropped almost 8% when the news was announced.

A RAL is a short term loan made at the time a tax return is filed. The size of the loan is usually the calculated amount of the refund, less tax preparation fees, interest, and charges. Basically, the tax client signs over their IRS refund to the bank making the loan. When the IRS sends the refund to the bank, the loan is repaid. With electronic filing, the time the loan is outstanding averages about 10 days.

H & R Block bent over backwards to prevent this from happening. The company even offered to cover any credit losses that HSBC would have had, making the loans essentially risk free. Since the OCC did not change their position, I have to conclude that protecting the integrity of the banking system was not driving the regulatory action. This looks like a politically driven decision, based on consumer protection arguments.

Consumer protection activists dislike RAL’s, because the loans have very high calculated interest rates. This is because the $29.95 charge to process the loan is added to the actual interest charges, then divided by the length of the loan to determine the APR. For an example, let’s suppose you borrow $2000 at a 24% interest rate for 10 days. The interest charge would be about $13. A high interest rate, but the overall bite of $13 bucks isn’t too bad.

Now, add in the $30 loan processing fee to the $13, and work the calculation backwards. That calculation is $43, divided by $2000, times 36. That comes out to just over a 77% annual percentage rate.

Your outrage over this depends a lot on how you look at the transaction:
Outlook I
“I’m going to loan you money and charge you 77% interest.” “That’s usury! You’re no better than a loan shark!”

Outlook II
“I’m going to loan you $2000 for one to two weeks, and it will cost you $43.” “That doesn’t sound so bad, and I’d like to get the money as soon as I could. I’ll take the deal.”

In point of fact, millions of tax clients took the deal every year. Now they will be “protected” from making this choice by the OCC.

Qualitative Easing Explained...Twice

There is a service that takes text and converts it to simple animated video. Here is one that has been making the rounds. It is quite critical of the Fed's move towards quantative easing (AKA pumping money into the economy). The deadpan delivery of the computer generated voices makes it hysterically funny.


The video above got enough play to cause somebody to generate a response in the same format:


It is not as funny as the first one, but probably a little more balanced. I still think the Fed is playing with fire by running the printing presses.

A Bad Deal All Around

Sometimes compromise means taking the best from both sides of an issue, creating a consensus that leads the way forward.

That’s not what happened with the recent tax deal put together between the White House and the Republican leadership, however. In that case, the worst of both sides was adopted. The deal panders to the short term interests of the principals, while creating the conditions that will lead to more long term pain further down the road.

The Republicans campaigned on the twin themes of rolling back ObamaCare and enforcing fiscal discipline. The White House wanted to raise taxes to combat the deficit spending they created. So, to compromise, let’s do neither of those things.

The White House agrees not to raise anyone’s taxes. In exchange, the Republicans will support extending unemployment benefits for another 13 months, along with two more years of not applying social security taxes to the first $6600 of earned income. Oh yes, we’re continuing heightened payouts on the earned income credit as well.

The net effect of this deal is that government spending will exceed revenues by almost a trillion dollars next year and the year after. We will continue to provide a reverse incentive to find work, allowing people over two years to stay on the dole. The long term sustainability of the social security program is made worse, because we are starving the program of revenues from a vast cross section of the employed.

This is the reverse of leadership. This is kicking the problem of fiscal deficits down the road two years, while entrenching an entitlement mentality ever more firmly into a large section of the populace.

In every game of musical chairs, eventually the music stops. In this game of political musical chairs, what scares me is that by the time the music stops, we’ll find that all of the chairs have been taken away, and we’ll all fall down.

'Tis the Season ...

This is my annual Christmas diatribe. I can’t keep up my reputation as a “Bah, humbug” kind of guy without one.

This is the time of year when we are encouraged to give more. Everywhere you turn, someone has their hand out, asking for a donation. Bell ringers at the grocery store. Angel trees at church. At work we are running a cash drive to raise money to buy Christmas presents for a number of families.

I think we should all just go out to eat instead. Take the twenty bucks we could give away to buy presents for somebody else’s child, and buy a steak dinner with it.

“Oh, that’s horrible.” “Have you no Christmas spirit?” No, not much. Still, even if I had the Christmas spirit, my method makes more economic sense.

First, consider multiplier effects. In economic terms, a multiplier is when you spend a dollar, and the business where you spend it pays their employees and their suppliers. Those suppliers, in turn, spend their share of that dollar on their suppliers, and so on. Economic activities with a high multiplier give you more bang for the buck. A low multiplier means that the impact of a dollar spent is damped out pretty quickly. So if you want to spread Christmas cheer as widely as possible, you should seek out ways of spending your money with higher multiplier factors.

Think of throwing a stone into a pond. The ripples spreading out from that event are a function of the multiplier. The higher the multiplier factor, the further the ripples spread before dying out.

Consider buying toys with your money. Almost all of the toys in the stores are imported from China. Even if the retail markup on those toys is 50%, the immediate impact on the American economy is less than a dollar. If the first stage of your calculation is .5, it is very difficult to see how your multiplier can get over 1.0. Instead of throwing a stone into a pond, imagine throwing a stone into mud.

Now consider dining out. When you buy that steak dinner, the employees of the restaurant get paid. But all of the purveyors to the restaurant also get paid. And those purveyors are sourcing Colorado beef, corn fed with Iowa grain. All of the money you spend stays on shore, and get respent by Americans. The multiplier effect is much higher than if you buy toys at Wal-Mart.

Also, if you’re feeling generous after your steak dinner, you can give a bigger tip to the server. After all, it’s Christmas time. That way, the server can go out and buy presents for her own kids, instead of having strangers buy for them. Maybe it is just me, but I’d rather support the working poor than the non-working poor. At least the working poor are in the game, trying to support themselves and their families. Between Section 8 subsidized housing, food stamps, and Medicaid, I feel like my tax dollars are providing enough charity. I want to use my uncompelled donations to give extra benefits for extra effort.

And finally, if you give cash to the annual Christmas drive, you don’t even get to see the results of your giving. When you eat out, you get to enjoy your meal, deriving a real and tangible benefit from your expenditure. All in all, it makes a lot more sense to dine out more than to give to charity this time of year.

Oh, who am I kidding? I put twenty bucks in the envelope along with everybody else.

Full Body Scanners

There has been a ton of foofarah surrounding airport security procedures this last week. The TSA has rolled out the new full body scanners at terminals across the country. These are the machines that use a low level of backscatter x-rays to produce a picture that looks like a shadowy outline of you without any clothes on. Installing the scanners was put on a crash basis after last Christmas' underwear bomber. He only managed to set his own genitals on fire, but his aborted attack revealed a weakness in the current security system.

People are complaining that it is too invasive, that the new scans violate privacy. Others claim that it is an unwarranted government intrusion into our lives. I have read some people urge that we boycott the air travel system until these scanners are pulled.

Worse, because there is a low level of x-ray exposure that is cumulative, frequent fliers may choose to opt out of the scans. If they do, the alternative is a "pat down" inspection. I've got to admit, I have no desire to have a TSA representative prod my genital area, checking to see if I have strapped explosives to my inner thigh.

But you know who I really feel sorry for? The TSA employees.

You want to see what I look like with no clothes on? Bring it, but I can't promise you'll be able to sleep at night. You need to "touch my junk?" Go ahead. You'll be the one to wake up screaming, not me.

It's not just me. A third of all Americans are obese, with another third in the category of overweight. I can just imagine the daily meeting at the airport where jobs for the day are assigned. "Joe, you'll be working the body scanner today." "Oh geez, no! Can't I x-ray bags instead, please!"

Seriously, I can't imagine a more thankless task than trying to stop terrorists from blowing up random flights.

The Pnedulum Swings Back

A week after the election, and the changed realities in Washington are still settling in. The electorate has decided to throw the rascals and scoundrels out, and bring in a new crew of rascals and scoundrels.

The results are not really too surprising, given the partisan overreach of the first two years of the Obama administration. After all, slapping the label “liberal” on a candidate carries significant negative connotations with the public at large. Even the liberals agree with that, which is why they’ve tried to rebrand themselves as “progressives.”

Two years ago, the picture looked quite different. There was plenty of talk about a new New Deal, the assumption that Democratic Party gains signaled a mandate for a gigantic expansion of the power and reach of the Federal government. America was finally going to take its rightful place among the nations of Europe.

It turns out that most Americans don’t want to live in France, even if they could find it on a map. If they did, Massachusetts would be a lot more crowded.

Even more shocking were the pronouncements made about the Republican party. One pundit wrote that the GOP was doomed to be a “rump party of southern white males.” Astonishingly, just two weeks ago editorial writer DeWayne Wickham wrote:
"Don't be fooled by the political gains Republicans are expected to make in the midterm elections. The GOP is on the critical list. The wins it will score, possibly enough to give it control of the House of Representatives, will be short lived. They are the dying gasp of a political party that has become too intolerant and too white in a nation whose population soon will be dominated by Hispanics, blacks and Asians."

Sure, because if you think massive expansions in government programs, along with tax rates to match, it must be because you are racist. The last time I checked, to gain a majority in the House of Representatives, the Republicans had to have more than half the voters choose their candidate in more than half the Congressional districts in this country. That seems pretty egalitarian to me.

But I think the best riposte to the claim that to be a conservative is to be exclusionary is this: New Mexico elected a new governor this week. Susana Martinez is the nation’s first female Hispanic governor. She’s a Republican.

Election Day

If the polls are correct, the Republican Party is poised to retake control of the House of Representatives. The outcome in the Senate is more in doubt. Although the Republicans will certainly pick up several seats, they will probably not gain the majority.

The most likely result will be divided government and gridlock, to which I say: Long live gridlock!

As a proponent of limited government, I am quite pleased at the prospect of a government that can’t get anything done. A government that can’t get anything done will not expand. A government that can’t get anything done will, of necessity, leave the citizens to their own devices. There is a technical term for that state of affairs. It’s called freedom.

The Republicans don’t need control of the Senate to resist the threat of encroachment into private concerns by the power of the state. Under Senate rules, they only need enough votes to prevent cloture and continue debate. The filibuster is a powerful tool for conservatism.

In the US Senate, it requires 60 votes to be an irresistible force. But it only takes 40 votes to be an immovable object.

Not Long Before the End

The fact that we only have one more week before the election makes we want to shout "hurray!" I think we should all have a celebration on Election Day. No, not because we get to see the awesome power of democracy in action, as we and our fellow citizens get to exercise our basic right to choose our political leaders.

The celebration is because after the election, they'll finally stop running campaign ads on television. Thank God for small favors.

Here's an attack ad:
"This politician supports amnesty for illegal aliens and increasing the income tax. He wants to export jobs to China. Do we really want a leader who thinks it's okay to give our jobs to illegals?"

That's an ad attacking a Republican!

Then there are the ads put out by the candidates themselves:
"I'm a gun-totin', truck drivin', Bible reading conservative."

That's from a Democrat!

Then there are the robocalls:
"We have a quick two question survey. 1. Do you support the rise of the anti-Christ, like our opponent? 2. Do you support having good jobs, like our candidate?"

Yes, I'm looking forward to the day after Election Day. Nothing like a little piece and quiet.

Foreclosure Moratoriums

You can look at the mess in the mortgage banking industry, and the current foreclosure moratorium, from two different directions. Looked at from one side, it a mess of terrible complexity and ambiguity. Uncertainty clouds the outlook. Looked at from the other side, there are no issues, and everything is as clear as a summer’s day.

The current moratorium is being imposed by the banks that process mortgage payments. In almost every case, these banks do not actually own the mortgage in question. The bank may not even have been the original lending institution for the mortgage. In today’s housing market, most mortgages are resold shortly after the real estate closing. Thousands of mortgages are pooled together into securities, which are then sold and resold. What the bank is doing is servicing the mortgage on behalf of the investors who actually own it. So in a foreclosure, the bank has to submit paperwork to prove that it has standing to foreclose on an individual. That is complication number one.

The systems for processing mortgage payments are highly automated, which keeps the cost down. Because almost all of the work is done by computer, it only takes a few people to handle thousands of mortgages. But the legal system is not automated at all. In a foreclosure proceeding, paper documents have to be submitted for every case, covering every aspect of the procedure. That is complication number two.

In the past, only a few mortgages were in foreclosure at any one time, compared to the number of mortgages outstanding. After all, is the borrower couldn’t make the payments, they were encouraged to sell the house to get out from under the mortgage. As long as home prices were rising, this worked. With the collapse of the housing bubble, millions of homeowners are underwater, owing more on their house than it can be sold for. Combined with high levels of unemployment, that means the number of houses being foreclosed upon has grown by leaps and bounds. There are vastly more houses in foreclosure than just a couple of years ago. That is complication number three.

In a foreclosure proceeding, the bank has to submit paperwork to back up their position. In the absence of the original loan documents, bank employees sign affidavits attesting that they have reviewed all of the documents connected with a case. It turns out that, faced with a crushing backlog, some of the document signers were filing up to 400 packages a day. They could not possibly have been reading all of the documents to ensure accuracy.

Now that this has come to light, some attorneys who represent homeowners facing foreclosure are arguing that not only are current foreclosure proceedings invalid, but that many past foreclosures are also questionable. That’s the background for the current moratorium. Lots of heat, not much light and clarity.

But as I mentioned before, there are two sides to the story. The other way to look is at the homeowners. These are people who borrowed the money to buy houses, and aren’t paying it back. I think even the attorneys representing them will admit that these guys have stopped paying the mortgage, sometimes years ago.

To me, this seems pretty simple. You stop making payments, you get your butt thrown out onto the street.

Right now, the squatters keep possession of the house until the bank can prove it has right of ownership. All of the delays are on the bank side of the equation. But it strikes me as unjust, that some people can get away with not paying back a loan without consequences. My solution: throw the deadbeats out, but don’t allow the bank to resell the property until they can catch up on the appropriate paperwork. In the meantime, the bank has to pay to maintain the properties, which they have to do anyway, until they can find a buyer.

This way, the squatters don’t get to make chumps out of the majority of homeowners who continue to pay their mortgage every month. At the same time, the banks have a powerful incentive to get their paperwork straightened up. Case closed.

A Right to Fire Protection?

Much has been made of the recent new story in Obion County, Tennessee. This was the story about the rural trailer that caught fire. When the fire department arrived on scene, they realized that the homeowner had failed to pay the annual $75 fee for fire protection. Accordingly, the firemen were ordered to back off, allowing the trailer to burn to the ground, a total loss.

The chief of the fire department has been roundly castigated for his decision. Apparently the trailer owner had paid the fee in years past, but this year he “forgot.” But I don’t see how the fire chief could have made the decision any other way. If the fire had been put out, not only would they have no guarantee that the homeowner would pay up next year, but as word spread, surely other homeowners would also choose to make the payment optional. “I just don’t have the money this month. Besides, what are they going to do, just let the place burn? They won’t do that.”

Here’s what I would like to see reported: in the week or so since this story broke, how many $75 checks have arrived at the Obion County courthouse, from other homeowners who had “forgotten” to pay for fire protection? “Holy crap, ma, they’re serious! They just let the Jones place burn to the ground! We gotta come up with the money, just in case.”

Many people, including me, had not realized that purchasing fire protection insurance was optional. It seems that this situation applies in many rural areas. When you think about it, this makes sense. In cities, and even in the suburbs, built up densities are high enough that a fire that starts in one structure can easily spread to surrounding buildings. Accordingly, fire protection becomes a common good. Everyone bears the risk, and the costs are covered through tax revenues.

In this case, the risk was isolated to the individual property owner. He could have pooled his risk with the other property owners by paying the fee, but whether on purpose or through negligence, he bore the risk alone.

He chose to roll the dice on needing the fire department. This time the dice came up snake eyes.

This does not bode well.

In 2009, Frito Lay started selling their Sun Chips brand in a new kind of packaging. They began using a biodegradable polymer made from corn in their plastic bags. The corn based plastic bags would break down much, much faster in a landfill than the traditional bags, which will probably still be recognizable as snack food packaging when the Sun expands to a red giant star.

A giant corporation is taking a step to protect the environment. Yay!

There was only one problem. The new bags were much noisier than the old ones. Noisier? Yup, a lot noisier. The corn based bags made a crinkling sound, kind of a cross between cellophane and tin foil being crumpled up. That is, if a jet engine was being fueled by tin foil and spitting out cellophane exhaust.

Well, the increased amount of noise was sufficiently irritating that customers began calling up and complaining. Apparently the folks stuffing their pie holes with salty snacks want the chips to be crunchy, but not the packaging. Frito Lay has listened to their customers, and has pulled the new biodegradable plastic from production on all but one flavor of Sun Chip. They’ll probably switch that line over as well in a year, once they’ve used up the corn-based plastic resin they are contractually obligated to buy.

They’ve probably already contracted for oil tankers to bring in the petroleum for next year’s plastic. No doubt from some despotic Middle Eastern country where the only other export is hatred for America. “We would spit on you decadent, chip loving Americans, but we have no water, so our bodily moisture is precious to us.”

What strikes me about this situation is that this one small step towards sustainablility is being retracted for the most miniscule of reasons. Some poor sap at Frito Lay headquarters made the gutsy decision to try out the biodegradable packaging material. Don’t you know that guy’s career is in the toilet now. It’ll be a long time before anyone else suggests changing the packaging to improve the environment.

“You’re a bright guy, Jones, and you’ve got a bright future with the company. So let me give you some advice. See that poor, shambling wreck of a man? The ruined giant pushing the broom around the offices? He was the man who championed the Sun Chips packaging change back in ’09. Don’t go pushing the ecology thing. It won’t be healthy for you.”

To deal with resource depletion, global warming, and dependence on imported oil, we will all have to make changes in our lifestyles. Here we have an example of a positive change that was rejected by the consuming public because the bags were too noisy. That gives you an indication of how far the average man in the street will go to protect the environment.

No, it doesn’t bode well at all.

The Democratization of Indolence

The modern industrial state has created a phenomenon that I call the democratization of indolence. That is the expansion of the number of people who do not work for a living, but instead have their economic support provided by others. Once the preserve of the wealthy, freedom from the need to work has now grown to cover large numbers of every socioeconomic class is our society.

Historically, almost everyone labored for their sustenance, almost until the hour of their death. If you were too old and broken down for physical labor, you were taken in by your children to support. Almost the only exceptions were the landed gentry, whose lifestyles were supported by the possession of large estates. The cash flow from that capital base enabled a lifestyle freed from the requirement to hold down a job.

Two factors have enabled enormous growth in the number of people who are exempted from the need to work. The first factor has been the institution of social security, disability, and pension programs. If you are old enough, sick enough, or have worked at one place long enough, these programs guarantee you monthly cash payments for life.

The second factor has been the dramatic advances in medical knowledge of the last few decades. It used to be that retirement would last only a few years, if you reached that point, before some degenerative disease would take you out. But nowadays our medical abilities have advanced to the point that diseases can be arrested, or symptoms managed.

Clogged arteries? We can put in a stent, and you’ll have more energy than you’ve had in years. Cancer? Catch it early enough, and we can cure it, or at least put it into remission for years. Joints worn out? We can replace them, giving you decades of increased mobility. I even know some folks who are “disabled,” yet give few signs of it. After all, once you get on the free money train, why would you ever get off?

Consider the case of a 55 year old schoolteacher who retires after 30 years on the job. A reasonable expectation is a life expectancy of 85 years, meaning she will be supported without having to work for as long as she actually worked. And for much of that time she will be able to sustain a high level of vigorous activity. Or not. After all, I call this the democratization of indolence. The key is, our hypothetical schoolteacher now has the cash flow to support a life of leisure, and the health to pursue whatever interests tickle her fancy. An enviable position.

The problem is that the promises to pay were made before the advances in life expectancy came about. The system is in danger of breaking down, because it is financially unsupportable. In France, the government is proposing to increase the minimum retirement age from 60 to 62. The result has been large scale protests and a general strike. Everyone wants a life of financial freedom, even if someone else has to pay for it.

The economist Herbert Stein once famously remarked “if something cannot continue, it will stop.” Despite the amazing advances in productivity of the last century, our society will not support half the people working while the other half does not. So we can either find a solution to the problem and coast to a stop, or stop by hitting a brick wall. It’s like jumping off a tall building. It is not the fall that kills you. It is the sudden stop at the end.

Education: Risk versus Reward

All investment entails risk. It is built into the very nature of the activity. You cannot expend resources, hoping for the promise of a reward, without accepting the possibility that the resources will be lost, and the award not achieved. After all, we cannot predict the future.

Anytime you make an investment, there is a chance that it will not pan out. As so many of us have discovered during the last couple of years, that is certainly true of our financial investments in our 401K’s. But it also true of the capital we invest in ourselves.

I’m talking about the money and time spent on higher education, specifically about post-graduate work. It’s not cheap. I’m taking graduate level classes in accounting at a local university. This is after completing an executive MBA a couple of years ago. Tuition and fees run about $1500 per class. I’m trying to get 18 credit hours (six classes) under my belt, because that is the minimum required to teach at the college level. I’m not quitting my day job, but I would like to teach at the adjunct level, part-time.

So I’m spending around $9 grand, along with hundreds of hours, plus the gas money to get to class, plus the opportunity costs of giving up what I could be doing with my time and money instead. In exchange, I get the potential to teach junior college students entry level classes, for about $1500 per class taught.

Strictly from an economic perspective, it is hard to make the numbers line up on this endeavor. Even ignoring the time value of money, it will take more than a few years to recoup the cash investment alone, disregarding the time invested. And what if I try teaching a class and discover that, contrary to my hopes, I hate teaching? There’s a technical term for that experience: it would suck.

From the risk-reward perspective, it is hard to make a valid case for continuing to go to school. The obvious question is: why do I continue to make this dubious investment?

First of all, I have a deep seated belief that continued acquisition of new skills is vital, both to expanding career opportunities and to enhancing job security. The more versatile and up-to-date your skill set is, the better able you are at withstanding the vicissitudes of an uncertain job market.

But ultimately, I have discovered that I love being a student. Oh, I’m not so fond of it when a paper is due, or I’m struggling with a problem set. But overall, I truly enjoy the educational process.

Basically, I’m an education junkie.

A Modest Proposal: National Park Pricing

I just got back from a week in northern California, including three nights in Yosemite National Park. The admission fee for the park is one of the best things going. It costs $20 for a carload. The problem is that the price is too low. The Park Service is underfunded, and has a backlog of maintenance projects that aren't getting completed. The other problem with underpricing admission to the National Parks is that it leads to overuse and overcrowding.

One thing you will notice almost immediately when you visit a National Park is that a lot of the visitors are not Americans. I would guess that half of the people at Yosemite when I was there were Europeans or Japanese.

I wonder if anyone has ever studied the idea of increasing the price of admission, then offering a discount to US citizens. Lets say the price goes up to $40 dollars a carload (still cheap), but drops in half if the driver presents an American driver's license. You could even include Mexican and Canadian driver's licenses, on account of NAFTA.

This type of differential pricing would raise a lot of additional revenue for the Park Service. The potential downside is that it might dissuade some foreign visitors from coming, and with car rentals, lodging, and meals, foreign tourists pump a lot of money into the US economy. You certainly don't want to injure that golden goose.

Because we have a lot of National Parks, we could conduct an experiment. Several of the parks could be selected for a trial run of this idea. The makeup of the attendees could be monitored both before and after the price change to see if it makes a difference. If there is no change, the new pricing structure could be rolled out across the entire system.

There may be existing international agreements in place prohibiting such a scheme. If that is the case, we still should increase the price charged for entry into the parks. That way the people who use the parks will be paying to maintain them. And I don't think there is any argument against maintaining the National Parks, so that future generations will also be able to enjoy them.

Anyone who has visited the wonders of one of our National Parks will agree with that.

If the Inmates Run the Asylum

Even though I am a conservative, even I have to admit there is a loony right wing fringe:
“Obama is a Muslim.”
“The income tax is unconstitutional.”
My personal favorite:
“Keep the government’s hands off my Medicare.”

But there is also a loony left:
“The previous administration should all be shipped off to the Hague to face war crimes charges.”
“It’s the government’s job to provide everyone with a minimum income. And unlimited healthcare. And housing.”
“We should unilaterally disarm and shut down the Pentagon, then take the money we save and give it to the poor.”

The thing is, the right wing is the side of the debate that argues for limited government. The left wing proposes more government intervention as the solution to almost every problem.

You can be as crazy as you want in your own home, and I’ll still sleep well at night. But give the crazies access to the machinery of the state, and a license to expand the state’s power and reach, and that’s when I get scared.

Great Moments in "Duh!"

The New York Times put out an editorial this week regarding Tom Delay, the former House majority leader. It included this breathtaking assertion:

But many of Mr. DeLay’s actions remain legal only because lawmakers have chosen
not to criminalize them.

This is the New York frigging Times, for cripes sake! I do not often agree with their political positions, but I always respected their smarts, at least till now. I know they have spell checkers, and I know they have fact checkers. Maybe they need thought checkers. Repeat after me, guys: “I will not print tautological statements above the fold.”

The statement does reveal an interesting mind set, however. Apparently, if the editors of the Times don’t like something, that means it ought to be illegal. It is clear that the Times thinks Tom Delay is a Very Bad Man, and must be punished even though his actions were all legal.

This is kind of like the left wing version of the current complaints about the Fourteenth Amendment. “I don’t like it when the children of illegal immigrants become citizens, solely because they were born in this country.” Really? What do you propose as an alternative? And while we’re on the subject, on what do you base your claim for citizenship?

Gridlock in government keeps looking better and better.

Ground Zero Mosque

At the center of the controversy over the proposed “Ground Zero mosque” in New York City lies a dichotomy between two opposing concepts: you can have an absolute right to pursue a course of action, and yet it is absolutely wrong to pursue said course of action.

The backers of the mosque have a right to build a house of worship anywhere zoning allows. The First Amendment, and over two hundred years of case law, establishes that fact quite clearly. However, I can see how some people could find it offensive to site a mosque only two blocks from the site of a massive attack upon America that was committed in the name of Islam.

I don’t often say things like this, but I do feel President Obama has struck the correct tone in his comments regarding this issue. You can defend the right to build the mosque, without being in favor of the project. In any case, this is a local issue, not a national one.

The Republicans howling about this project are doing the worst kind of demagoguery. They’re throwing stones, knowing that they don’t have to accept responsibility for actually taking any kind of action. If they were the party in power, they would be defending First Amendment rights as well. If Democrats were pointing this out, instead of calling Republicans bigots, they would have a more effective argument as well.

On the other hand, commentators who claim this is only a “cultural center” and not a mosque are deluding themselves, and attempting to delude the public as well. I don’t care that the plans for the fifteen story building include gym and an auditorium. There is a large Southern Baptist church only a couple of miles from my home. On their campus is an events center, an athletic center with four basketball courts, a school, and meeting rooms. Nobody is deceived that all of that is not ancillary to the real purpose, which is a church.

Ultimately, those offended by the presence of the Cordoba Center will have to make their peace with the project, for the concept of freedom of religion trumps all of the objections. And I think that is the best argument for allowing the project to proceed. The World Trade Center was attacked by extremists whose world view called for very little tolerance. What could be a greater repudiation of that world view than to promote tolerance by shutting up and allowing the project to proceed.?

Federal vs. Private Employment

The Cato Institute had an interesting analysis on their web site. They aggregated the compensation of all Federal employees, and compared that to the aggregated compensation for all private sector employees.

The first figures presented were for average cash compensation:
Federal Employees: $81,258
Private Sector Employees: $50,462

Federal employees average much higher wage and salary than the private sector. However, the difference does not become eyepopping until you include the public versus private benefits packages:
Federal Employees: $123,049
Private Sector Employees: $61,051

Well, the Feds get better pay, and they get much better benefits. But they have to put up with higher risk of getting fired or laid off, right? Oh, wait, no, it’s the other way around. The annual risk of getting laid off or fired:
Federal Employees: 7.7%
Private Sector Employees: 24.1%

Not only is the private sector (i.e. the taxpayers) footing the bill for this disparity, but the gap in all of these measures has increased over the last ten years.

You can’t call them civil servants. Better to call them civil masters.

Plan A, Plan B, and Plan C

One theme that has been consistently sounded throughout the saga of the BP oil spill has been that “BP didn’t have a plan.” The idea is that it is irresponsible to drill for oil in deep water without knowing how to turn the well off if things go wrong. The proof that BP did not have a plan is that it took over 100 days before they were able to devise a method of capping the well, and that several of the approaches they tried (the top shot, and the large containment cap) did not work as planned.

Now, I’m no petroleum engineer, but I suspect that characterization is unfair. BP did have a plan for what to do if things went wrong with their wellhead, a mile under the water. That plan was to use the blowout preventer to seal off the well in the event of problems.

The blowout preventer is a large, expensive piece of equipment that is installed at every wellhead. Its function is to automatically seal off the well if pressures inside the well exceed specified levels. Indeed, the pressures inside the well are used to drive the mechanical rams that pinch shut the opening inside the well pipe. Failing an automatic shutoff, the blowout preventer also has a manual shutdown mode as well.

Blowout preventers are a well proven piece of technology, having been originally developed in the 1920’s. Used worldwide, there are many instances of their stopping oil gushers from occurring in multiple environments throughout the world.

Of course, the blowout preventer installed on the Deepwater Horizon rig failed to work on the day of the accident, allowing the explosion that sank the rig. That was as bad as it had ever gotten on an oil drilling site. A couple of days later BP sent down a deep water submersible, to manually close off the blowout preventer. That’s when things got worse, because turning the manual valve had no impact on the gusher of oil spewing into the Gulf.

When Plan A fails, you go to Plan B. If the combination of Plan A and Plan B has always worked, you don’t need to prepare a Plan C ahead of time. That is the situation the BP engineers found themselves in a little over 100 days ago.

The building where I work, like almost all commercial buildings in this country, is protected from fire hazard by a sprinkler system. In addition, we have fire extinguishers strategically located throughout the building. The experience of BP in handling the Deepwater Horizon disaster would be like having a fire break out in our building, and the sprinklers failed to pop. Then, when we rushed to the fire extinguishers, we found that they were all empty.

If we then had to invent the Fire Department, while simultaneously trying to capture all of the smoke to control air pollution, that would be analogous to what BP has tried to do in the last three months. The miraculous thing is that they have eliminated three quarters of the spilled oil while using a mix of proven and invented techniques to close off the broken well.

There was plenty of opportunity for negligence in the operation of the Deepwater Horizon rig. But the real question will be why did Plan A and Plan B not work, not why was there no Plan C on tap. The central issue will be: why did the blowout preventer fail?

Maybe this incident shows the need for a Plan C. Perhaps equipment recapping undersea wellheads needs to be stockpiled, ready for use if an incident like this ever happens again. But that wasn’t obvious in advance, and I’m not sure it is obvious even now.

One thing I do know: experience is what you get when things go wrong.

Where did the oil go?

A panel of experts from the Interior Department and NOAA has released a report today estimating that 74% of the oil that gushed into the Gulf of Mexico from the damaged BP oil well is already gone. About 20% of the spill was skimmed from the surface, or collected by BP and burned off in “flaring” operations.

Where did the rest of the oil go? Apparently a lot of it simply evaporated. A large portion of the oil was “bioremediated.” That’s a fancy word that means bacteria in the water are eating the oil, breaking it down into water and carbon dioxide. This is a natural process that has been greatly accelerated, both by summer storms moving through the Gulf, and by the enormous amounts of chemical dispersants dumped on the oil slick by BP. The dispersants break up the oil into teeny tiny droplets. The more surface area, the more the bacteria can get at the oil.

It is not a bad idea to be skeptical about these kinds of announcements. How did they get to 74%? Why not 71%, or 76%? Still, this is not BP’s estimate. This is a theoretically independent government panel. They’ve got no reason to low ball the amount of oil left to be cleaned up.

If this is true, it is an extraordinary claim. The implication is that in light of what is widely claimed as the worst environmental disaster in the nation’s history, three quarters of the problem was cleaned up in real time. They haven’t finished cementing the well shut yet, and 74% of the oil is already gone.

If the efforts of both man and nature continue at this rate (unlikely), the oil spill will be gone by the end of hurricane season. The oil that has already hit beaches and marshes will still have to be cleaned up, and I’m sure that somebody is going to have to scoop up tar balls that float ashore for years to come. However, it begins to look like the worst of this mess is already behind us.

BP has been widely excoriated for not having a plan in place to deal with the situation ahead of time. I think people have been selling the company short. They have brought enormous resources to bear in a remarkably short time, and that huge effort seems to be working. The media has underestimated what the can-do attitude of Americans can accomplish, when faced with an emergency, and backed up by a butt load of money.

2010 Goals: Progress Report

We’re a little past the halfway point of 2010, so I thought it would be a good idea to review the progress so far towards my personal goals for the year. It is an axiom of management that you don’t get what you want, you get what you measure. This is as true in one’s personal life as it is in business.

Goal: Run 50 kilometers of road races.
Status: Complete.
A heavy race schedule in March, April, and May, including one 10K, let me complete this goal by early in June. No races are set for the hot part of the summer, but they will pick up again in September/October time frame. I clearly low-balled this goal. Next year I may have to commit to a half marathon.

Goal: Complete three authors from The New Lifetime Reading Plan.
Status: Complete.
I tackled the English Lake District poets first: Wordsworth and Coleridge. Then I jumped forward forty years and read selected works from the American essayist and philosopher Emerson. Having plucked the low hanging fruit, I have started in on The Story of the Stone, a massive Chinese novel of the late Ming period. At 2500 pages in four volumes, this will keep me occupied until the end of the year. If I get through that this year, next year I may decide to take on Proust’s Remembrance of Things Past, all seven volumes of it.

Goal: Entertain at home 12 times throughout the year.
Status: Ahead of schedule.
Man does not live by money alone. A recent study showed that people who had a bigger network of friends tended to live longer. Within my experience, I would argue that they also live better. We are social animals, happiest in a group setting. So far this year we have entertained at home eight times. These have ranged from intimate dinners with another couple to outdoor barbeques with 30+ attendees. Party on, dude!

Goal: Save 20% of earned income.
Status: On-track.
Due to a larger than expected income tax refund, I was able to fund my Roth IRA with the equivalent of 5% of estimated earnings in the first quarter of the year. Between my contribution to the company 401K and the corporate match, another 15% is being added to my retirement funds. Now if only the stock market would recover and start growing again.

Goal: Reduce total debt to less than $60 K.
Status: Ahead of schedule.
Including the payments made at the end of July, I am now down to $62 K in debt from mortgage, car loan, and line of credit. I am paying down principle at the rate of $800 per month, including tripling the equity payment on the monthly mortgage. Debt reduction and savings rate are linked. I could apply a higher percentage to savings, and slow down on debt reduction. But I get a guaranteed 6.5% return on capital by drawing down my mortgage faster, and in today’s market that looks pretty good.

Goal: Earn $2000 at H & R Block.
Status: Failure.
I only made about $1000 during tax season this year. Including the training hours I put in, my hourly rate was very little better than minimum wage. After peak season was over, walk in traffic dropped down to zero, and I dropped my hours down to zero. No point in coming in just to sit in the office. I need to take certification tests to increase my compensation rate, but even then I don’t see myself hitting this goal next year. On the other hand, doing taxes does provide good blog fodder, so I’ll give it at least one more year.

Goal: Take 9 credit hours of graduate level accounting classes.
Status: On track.
My original plan was to take one class (3 credit hours) in Spring, Summer, and Fall semesters. After completing one class in Spring semester, I wasn’t able to find a summer class that fit my schedule. So I have doubled up, and am signed up for two classes starting in September. This is about half a standard academic load, and is more than I have ever taken since I started working. So we’ll see how this goes in the fall.

Goal: 60+ blog posts.
Status: On track.
Seven months into 2010, and I have kept my average of 5 posts a month. I need to focus on posting at least once a month for the balance of the year.

It is easy to focus on goals, and lose sight of the reality that the milestones and measurements are intended to represent. So, to put this progress report into a different perspective: I am healthy and fit, and enjoying time with a wide circle of friends and family. I am continuing to grow both intellectually and professionally, while storing up resources against the vicissitudes that inevitably come to everyone. Life is good!

Title IX and Cheerleading

An interesting legal decision regarding Title IX came down this week. Title IX is the civil rights legislation that governs women’s collegiate sports, and is widely credited with dramatically expanding athletic opportunities for women in college. Basically, the legislation says that you cannot discriminate against woman’s sports in favor of men’s sports.

This is the sticky point. How can you tell if women’s sports are being discriminated against? The most commonly used test is called the proportionality test. What this means is that the percentage of women on the school’s sports teams should equal the percentage of women enrolled in the school. If your student body is 55% women, 55% of the athletes at the school must also be women. If not, you are guilty of discrimination: you better hand out more scholarships to girls, and by the way, you can pay the lawyers on your way out of court.

Since they have to pass the proportionality test, colleges play games with their sports programs, either adding women’s sports or dropping men’s sports. This brings us to the current case.

Quinnipiac University in Connecticut wanted to drop their women’s volleyball team. To make up for the number of slots lost, they claimed that cheerleading counted as a varsity sport. Making the substitution, the proportion of woman athletes was within 4% of the percentage of woman in the student body, which the University claimed was close enough. These claims were not unique to Quinnipiac. Other colleges have made the same assumptions.

Anyway, the volleyball team sued the school (with the help of the ACLU), and the judge ruled that cheerleading was not a sport. In a world where synchronized swimming is an Olympic event, how the hell do you rule out cheerleading as a sport?

What are the criteria to determine if an activity is a sport? I think we can all agree that it should be an organized physical activity, with coaches and competitions. Cheerleading seems to fit the bill in all of those particulars. Just go to YouTube, and you will find videos of astonishing athleticism and teamwork, taken at cheerleading competitions. If Quinnipiac decided that cheerleading was more cost effective (11 slots for volleyball vs. 30 slots for cheerleading), or more popular, than volleyball, what right has a court to interfere with that decision? After all, we live in a world where synchronized swimming is an Olympic event.

Apparently, the judge’s decision turned on the fact that the cheerleading team competed against several different types of other cheerleading teams. They competed against other colleges, but also against club teams not affiliated with any school. Also, the rules were different for different competitions.

Another part of the judge’s ruling dealt with how the school counted team membership. The college had women’s teams for cross-country, indoor track, and outdoor track. They counted the athletes who participated in all three sports three times. The judge cried foul on that practice. Interestingly, the school dropped men’s outdoor track last year. How much do you want to bet they will drop the women’s track team next year? After all, you don’t get any credit for it. Now, is that a good thing or a bad thing?

Ultimately, Title IX has become a form of affirmative action for women’s athletics. However, unlike affirmative action in college admissions, in the case of sports, quotas are not only encouraged, but required to meet the dictates of the law. Although it has unquestionably opened up more opportunities for women, it also leads to gaming the system and restricted opportunities for men. These are the results we would expect from any quota system.

Unemployment Benefits

I have friends among the ranks of the unemployed. I know one guy who has not had a full time job for almost two years now, and not for lack of trying. He has been to several out of state interviews, as well as numerous phone interviews, and he just can’t close the deal. This is probably largely due to his age (60+), but it also an indication of how tough the job market is these days.

However, I also know and have written of individuals who are working on the black market while continuing to draw unemployment (and food stamps, and welfare). In those circumstances, unemployment compensation is clearly a disincentive to taking on a regular job. So while I have some sympathy for those who struggling to find employment in today’s economy, I come down in favor of cutting off unemployment compensation after 75 weeks.

The Obama administration recently tried to push through another extension of unemployment benefits. It was stopped in the Senate by Republicans, concerned about the level of deficit spending. In the next six months, a number of the long term unemployed will lose their benefits as they expire.

I was reading the Freakonomics blog today, and I noticed an earlier post on this subject. As part of his post, one of the things Daniel Hamermesh said was

The original, and I believe continuing, purpose of unemployment insurance is to
maintain consumption of the unemployed—to prevent hardship.

I think the author has combined two different rationales in that sentence. There are two separate arguments for continuing unemployment benefits, and the Freakonomics author has folded them together. The easier argument to follow is to prevent hardship. It sucks to be unemployed. Having a little money coming in keeps food on the table and the lights turned on while looking for the next position. If you are living paycheck to paycheck, and then those paychecks are cut off, you are in deep trouble. With the current high level of unemployment, there are no jobs, so the need for the safety net is still there. In essence, this argument is “extend unemployment, because you could be next.”

The more complicated argument is that unemployment benefits maintain consumption. This is really a macroeconomic argument, as opposed to easing hardship at the microeconomic level of the household receiving benefits. The idea is that consumption drives demand, which drives production, which drives employment. Put another way, the argument is that if laid off people have no income, their spending drops to zero. When customers stop spending, businesses lay people off. If those laid off people also stop spending, the cycle will continue until no one is left standing. Basically, this boils down to “extend unemployment, or you will be next.”

After 18 months, however, both arguments begin to wear thin. Being an American citizen is a guarantee of certain inalienable rights. But it is not a guarantee of a standard of living, or even of a job. It is not the responsibility of the government to borrow money from the Chinese in order to send people checks in perpetuity. Enough is enough.

Disability Claims

We had one of our employees quit last week. She worked half a shift on Tuesday, left for a doctor’s appointment, then called in Tuesday afternoon to say she was quitting with no notice.

Here’s what was reported to me:

At the woman’s doctor appointment, she had reported symptoms so severe, that her doctor had declared that she should be on permanent total disability. He told her he would support her in her disability claim. The woman promptly went down to the local Social Security office and filed for disability. After filling out the paperwork, the first question the officials asked her was: are you still working? When she told them she was going to give two weeks notice, she was told not to give notice, as it would screw up her claim, by continuing to work after filing for disability status.

Additional information: The woman’s husband just started receiving his disability checks, after waiting almost two years for his claim to wend its way through the system. It usually takes at least a year for Social Security disability claims to be processed. However, it turns out that you get back pay: once your claim is approved, payments are made back to the date of first filing.

A few questions: Why are the bureaucrats at Social Security coaching applicants for disability? I would think that at best, part of their job would be root out attempts to defraud the taxpayers. At worst, they would maintain strict neutrality. If you want to go back to work after filling, who are they to advise against it. Let the chips fall where they may.

This leads me into my next question, and central point. If this woman was able to work two weeks notice, then how disabled could she be? For that matter, she worked a full shift Monday. I saw her do it. There was no evidence that I could see of a disabling medical condition. Not last week, or the week before, or the week before that. She never came to management and asked for an accommodation to any medical condition.

Here’s where I speculate: Our employee worked her job, supporting herself and her husband while his disability claim was processed. Now it’s his turn to support her. His back disability will support them while her claim is processed. Furthermore, now that he has learned the ins and outs of the system, he will be able to coach her while she goes for a second helping from the same pot.

This leads to one more question: How many people on disability have another member of their household also drawing disability? Once somebody in the house figures out how to get free money, how often does another member of the home decide to go for more free money?

Okay, that was two final questions.

A Favorable Omen

After the backyard barbeque and fireworks on the Fourth, I had a holiday today to recuperate. Later in the afternoon, I decided to go to the gym and try and work off some of the bratwurst and baked beans.

Walking up to the entrance of the gym, I noticed a small pile of change sitting on one of the platforms holding the faux columns that frame the entry. Three quarters, two dimes, and four pennies. Thinking that it could be some kind of trap, I restrained myself from grabbing the money on my way in the door.

After finishing my workout, I saw that the money was still there when I came out. Well, you don't have to tell me more than twice about free money before I go and see for myself. Half expecting some kind of hidden camera stunt to materialize, I snatched up the coins and pocketed them.

No one jumped out and accused me of stealing their money. So far, so good. Not only that, but as I walked across the parking lot, I spotted more change: a quarter here, a nickel there, a couple more pennies. My mama not having raised no fool for a son, I pocketed them as well.

Due to the long weekend, the coming week is going to be a short week at work. And now I'm up $1.31. Is this going to be a great week, or what?

Headlines in the News

You absolutely have to wonder who writes the headlines sometimes. Here is a headline from today's Washington Post: "Top Defense Officials Say They 'Fully Support' Obama on Removing McChrystal."

Well, duh! Given that McChrystal was removed from command of US forces in Afghanistan because of interviews where it sounded like he did not 'fully support' the administration and every member of the civilian staff, what would you expect them to say? They may think it was a terrible idea to fire the guy, and they would publicly say they fully support the decision.

You have to wonder what the troops on the line think about this kerfluffle. Actually, I can guess. I bet their thinking runs something like this: "The general screwed up and criticized the civilians, and they punished him by sending him home to the States. If I screw up like that, can I get punished the same way?"

The more things change ...

Recently I have been reading some of the works of Ralph Waldo Emerson, the nineteenth century philosopher and writer. In his essay titled Self-Reliance, I came across the following passage:

“…do not tell me, as a good man did today, of my obligation to put all poor men
in good situations. Are they my poor? I tell thee thou foolish philanthropist that I grudge the dollar, the dime, the cent, I give to such men as do not belong to me and to whom I do not belong. There is a class of persons to whom by all spiritual affinity I am bought and sold: for them I will go to prison if need be; but your miscellaneouspopular charities; the education at college of fools; the building of meeting-houses to the vain end to which many now stand; alms to sots, and the thousand-fold Relief Societies; -- though I confess with shame I sometimes succumb and give the dollar, it is a wicked dollar which by and by I shall have the manhood to withhold.”

Written in the 1840’s, this hit me like a thunderbolt. There really is nothing new under the sun. The only change to the terms of the debate in the last 160 years has been that now Emerson’s philanthropist would argue that it is the government’s job to “put all poor men in good situations,” and Emerson must give his money in taxes to support this worthy goal.

BP Oil Spill: What Not To Do

Although BP is having some success capturing the oil from their undersea well, some is still escaping into the Gulf, adding to the enormous amount of oil already spilled. As the oil slick continues to spread, and oil begins to come ashore in coastal communities, the sense of frustration in the general populace continues to mount.

I have been reading a lot of wild proposals coming from both op-ed writers and the commenters on news sites. I thought I might react to several of the most preposterous.

Boycott BP
This has got to be the dumbest idea yet put forward. Let’s “punish” BP by not buying their gasoline. Even if it were possible to get enough people acting in concert to impact BP’s sales, this would be a bad idea. Cleaning up this spill is going to take years, and a ton of money. If BP is going to be held responsible, they are going to need a continuing stream of cash flow to pay for this mess. They are going to get that money by continuing with their on-going business of producing and selling oil and gas. Starving your cash cow is never a good idea.

Turn the situation over to the armed forces
What are they going to do? Defend the beaches by shooting the oil as it tries to come ashore? Launch air strikes against an oil slick? I was in the army, and I was actually in a Corps of Engineers unit that had earthmoving and construction capabilities. One thing we were not trained or equipped to do was clean up spilled oil. Even more ludicrous is the idea that the military will take over efforts to shut down the leaking well. All they can do is provide unskilled labor. The know-how, gear, and systems for cleaning up will have to be provided by someone else.

A variant of this is the plea for the government to take over the effort to plug the leaking well. Nobody in the government knows jack-all about undersea well drilling operations. There is no evidence anywhere that BP’s management and operating personnel aren’t doing everything they can to plug this well, and they seem to be throwing all their resources into trying to solve the technical problem.

Criminal prosecutions against BP executives
I read a news story earlier this week that said people being polled wanted to see criminal prosecutions by a ratio of two to one. To even conduct the opinion poll is an example of mobacracy at its worst. I am hard put to imagine what the crime is supposed to be that the senior executives committed. Did they knowingly buy defective blowout preventers because they were cheap? Did they direct personnel to falsify test reports and bypass safety protocols? No evidence of any such activity has come to light.

Stop drilling oil wells
The fantasy here is that screwing in compact fluorescent bulbs and driving hybrid cars will drop our energy usage to the point that we can stop using petroleum. Even if we cut our energy usage in half, we still need to face the fact that all of our transportation systems are totally dependent on liquid fuels. Unless we want to outlaw air conditioning and airplanes, and put everyone on a bicycle, we’re going to continue to need oil to make our civilization function.

Frustrating as it is to watch the live video feed showing oil continuing to pour out BP’s well at the bottom of the Gulf, they will eventually solve the problem and seal off the leak. Containing, and then cleaning up all of the leaked oil will take years, maybe decades, and BP should have to pay, both for the clean up efforts and for the losses other people are going to suffer as a result of this disaster. As a going concern, BP has the size and scope of operations to compensate the victims of this colossal accident.

But striking out at the company as a result of built up frustration won’t solve anybody’s problems.

Helen Thomas: Did she really say that?

At 89 years old, Helen Thomas is both the oldest, and the longest serving member of the White House press corps. As the longest serving member, she not only gets a front row seat at the daily press briefings; by custom, she has the right to throw out the first question at the President's press conferences. By virtue of her longevity, she has transcended her position to become an institution.

She also appears to be a raving anti-Semite.

Last week she was captured on camera giving her opinion regarding the Israeli-Palestinian problems in the Middle East.

Now, you can deplore Israeli policy towards the occupied West Bank. You can call Israeli military actions against the Gaza strip completely disproportionate, compared to the provocations offered by Hamas. You can even make the argument that Israeli has ceded the moral high ground of a democratic society, and created an apartheid regime.

What you really can't do is state that Jews living in the Middle East should "Go home...to Germany and to Poland...and to everywhere else."

You might be able to make the excuse for Ms. Thomas that she has suffered enough microstrokes in her frontal lobes that it has seriously affected her judgement. Maybe she really doesn't mean, or even understand, the implications of her statements.

Be that as it may, it's time for her to go. When she recites what is basically the Hamas party line, she demonstrates that she is unfit for any position as a responsible journalist. The Hearst newspaper syndicate needs to fire her.

And people bitch about Rush Limbaugh.

Be Afraid. Be Very Afraid.

In high school (a long time ago), I took a class in Science Fiction as Literature. One of the themes of the course was the Frankenstein story.

Victor Frankenstein, a brilliant scientist, builds his creature without considering the consequences of creating artificial life. Once animated, Frankenstein is unable to control his monster, which goes on to destroy everything that Frankenstein holds dear. Finally, Frankenstein himself perishes in the attempt to destroy his creation.

At the heart of the Frankenstein myth is the fear of the unintended consequences of new and developing technologies. The Terminator movies are a version of the myth. Jurassic Park, and most of the other novels of Michael Crichton, merely ring changes on the theme.

I’m put in mind of Frankenstein by watching news coverage of the BP oil spill disaster. Seeing live video of that dark, mysterious cloud billowing out of the pipe, a mile under the surface. Watching satellite photos of the spreading oil slick in the Gulf of Mexico, spreading its tentacles further and further. The oil pouring up from the bottom of the sea is the monster.

Filling the role of mad scientist, BP’s drilling crews created the monster. And with every failure to stem the flow of oil, the lack of control over what they have created becomes more apparent.

In every good horror story, the real fear comes from the anticipation of what is going to happen, not the action itself. Life copies art in this respect as well. As of this writing, no one knows how much oil is eventually going to leak into the Gulf, or what the final environmental tally will be. We just know that it is going to be bad.

The biggest sinkhole ever.

Holy Cow!

This is an image of the sinkhole that opened up in Guatemala City over the weekend as a result of a tropical storm.

It looks like something out of a science fiction movie. Like the one where aliens burn a hole in the crust of the planet from space. Or maybe like the one where the supervillain activates his seismo ray device and chews up the heart of a city. Or maybe like the one where the hero realizes that all of what he thinks is real is actually a computer generated illusion.

Astonishingly, no one was killed when the sinkhole opened up, although it did swallow part of a building.

Violence vs Non-violence

I just watched the video of Israeli commandos rappelling onto one of the ships of the Gaza relief convoy. It looks like the commandos and the passengers on the ships are working off two different scripts. The Israelis are working off the standard non-violent resistance script. The Israeli role is to play the heavy, intercepting a peaceful humanitarian mission in international waters. The “activists” on the convoy, by peacefully resisting, establish the moral high ground, and focus international attention on the justice of their cause.

The folks on the convoy were apparently not working off that script. They were attempting to repel enemy boarders. There is nothing non-violent about clubbing someone to death with a metal bar, which is clearly what the passengers were attempting to do.

The Israelis were clearly surprised by the ferocity of the reaction to their boarding. Near the end of the video you can see one of the commandos pointing a paintball gun at the passengers. I’m thinking they wouldn’t have been carrying paintball guns if they had planned on things turning as ugly as they did.

Of course, at some stage of the proceedings the commandos declined to be swarmed and beaten to death. They pulled out the real guns they were carrying and used them. The escalation of the violence caused ten times the international reaction that a non-violent incident would have engendered.

This has become an public relations disaster for Israel.

Turning the Cards

At work we are still in hiring and training mode. The hiring is now not being driven by an expansion of our business, or even the turnover of experienced personnel from retirement or relocation. No, we are now hiring trainees to replace the trainees who washed out.

One guy found a better job, and we determined that a couple of others were not going to work out long term. From management’s point of view, it is always best to cut ties as early as possible, once you have decided that you have an unsatisfactory candidate. Why continue to invest training dollars in someone who is not going to make it?

Despite our best attempts at interviewing and upfront testing, hiring is largely a blind process. I know of no way to determine is someone is truly going to perform in a job, prior to having them start in our unique environment. With some people, it is apparent early on that they will excel, going far in our organization. Sometimes it’s an absolute disaster: the person who creates a quality problem, or breaks equipment, or gets someone hurt. But they all look pretty much the same coming in the front door.

It is also a linear process. When I say that it is linear, I mean that we can only try out one candidate at a time for a position. It would be tempting to hire multiple candidates simultaneously, and then select the best one at the end of training. You retain the star, and drop the others.

A Darwinian selection process would probably be more cost effective than working with one candidate at a time. But that approach strikes me as fundamentally flawed and unfair. We make hiring decisions in good faith. Hiring multiple people, with the intent of cutting some of them, breaks that faith. If a person can do the job, they get to keep the job. I will forego the possibility of finding someone even better.

So, hiring is both, blind, and linear. The metaphor I use to describe this process is playing solitaire. You can shuffle the deck all you want, but eventually you’re going to have to turn over a card. Most of the time you get a number card, a three, or an eight, or a ten. And that’s how many days they last. Then you have to turn over a new card, and try again.

You’re hoping for an ace, you’ll settle for a face card, and you’re praying you don’t get the joker.

Cell Phones for All

I discovered a fresh outrage this weekend. Unusually for me, I was glued to the tube, watching the series finale of Lost. Four minutes of show, three minutes of commercials. Anyway, from sheer repetition, commercials for Assurant Wireless began to penetrate my consciousness.

Assurant Wireless offers a free cell phone, along with 200 minutes of free nation-wide calling every month, as long as you qualify. The primary qualification is to be receiving food stamps, or to have income below 135% of the Federal poverty level.

The first problem with this is that the “free” cell phone service is not free, of course. It is being paid for out of the taxes attached to the paying customers’ phone bills every month. So I’m being taxed, not to pay for a common good like police or fire protection, but for someone else’s specific good. But the irritation doesn’t stop there.

I can kind of wrap my mind around the concept of food stamps. No one should starve in a nation full of food. But when was it decided that cell phone service is a right, not a discretionary expense?

Then there’s that 135%. The whole point of having a Federal poverty level is that is supposed to be the line demarcating the poor (who presumably need help from the government), from the not-poor, who should be able to fend for themselves.

Those are all bad enough to give me dyspepsia. The part that really frosts me, however, is the television commercials. The contract to provide the “free” cell service is so lucrative that the company (a division of Virgin Mobile) can afford a primetime TV ad campaign. They want to reach anyone who might be qualified, and get them to sign up. There used to be at least a little bit of a stigma associated with government assistance. You were supposed to have enough pride to take care of yourself. Not any more. Don’t be embarrassed to get free cell phone service. You’re entitled to feed at the government trough.

This whole situation irritates me, but in reality, it is only an irritant. The taxes that pay for this program are not unduly onerous. But I wonder how the folks who earn 140% of the poverty line feel. If they want cell service, they have to choose what to sacrifice to afford the luxury of a cell phone. I’ll bet this makes them just wild.

Synthetic Life

This was a big week for molecular biology geeks. Craig Venter and his team at the Venter Institute in Maryland announced that they had successfully created what they call “synthetic life.” Like Dr. Frankenstein, we have now created life from non-living material. Surely designer organisms that eat carbon dioxide and secrete oil are not far away, thereby solving both global warming and the energy crisis!

Well, maybe not.

When you get beyond the hype of the press release and examine what Venter’s team really did, it boils down to three things. 1) They completely decoded the DNA of an existing bacteria. This is known as sequencing the genome. 2) They artificially created a copy of the sequenced DNA, starting with the nucleotide bases that are the building blocks of the DNA molecule. As part of that process they modified some of the nonfunctional sections of the DNA to insert what are called “genetic watermarks.” 3) They took a different bacteria, removed the genetic material that was native to the germ, and implanted their prebuilt DNA. The newly implanted DNA then took over the machinery of the cell and began making copies of itself in the normal process of cell division.

These are all neat tricks, to be sure, and incredibly difficult to boot. But I think they fail two key tests for the claim of truly creating artificial life. First, true artificial life will have a genetic code designed from scratch. Venter borrowed the genetic code from an organism that had developed over a billion years of trial and error evolution.

Second, to be truly synthetic, they would have to combine their novel DNA with both a lab grown cellular membrane and built from scratch cellular metabolic machinery. If that assembly then began to grow and reproduce, then they could truly claim to have built an artificial life form.

We’re still a long way away from gleefully cackling “It’s alive! My creature lives!,” as we rub our hands together with glee. Consider: the bacterial DNA Ventner synthesized consisted of a little over one million base pairs, combined to make a single chromosome. Human DNA includes over three billion base pairs, spread out over 46 chromosomes. That’s three thousand times more genetic code.

Those caveats aside, it is still an astonishing technical achievement. Clearly with some fine tuning, they will soon be able to use their techniques to do the kind of design work mentioned above.

Educational Qualtiy Control

I want to build on my concept of testing as educational quality control that I started in my last post.

Quality control, or quality assurance, as it is sometimes called, is a core function in every manufacturing plant I’ve ever seen. We continuously check product at every stage, from incoming raw material to assembly to final audit before shipping. The question is always the same: does the product meet specifications? Put another way, what we are doing is verifying that the manufacturing process is generating the desired result.

If you check parts, and find you aren’t getting the correct result, then there is a problem with the process. But until you do your quality checks, you don’t know what you are producing. Also, one of the key guidelines of quality control is to check your quality as early in the process as possible. It makes no sense to wait until after you have finished final assembly to test the product and discover there was a problem with the first step in the assembly process. Finally, a good quality control program relies on objective evidence. If a good part has to be round within .004”, everyone agrees on that, and everyone agrees on how to measure the part. There is never any discussion of “the parts look round enough to me.” It is either round within .004”, or it is not. If not, then there is a problem, and we have to fix the problem.

In education, standards and standardized testing take the place of quality control. That’s why I can never understand why the educational establishment fights so hard against standardized testing. Actually, that’s not true. I completely understand why teachers fight so hard against testing. If I had a complete lack of accountability for producing the desired result in my job, I would want to protect that too.

What I don’t understand are the lame excuses offered as to why we shouldn’t use standardized tests to evaluate the performance of our education processes. For example, “all we do is teach to the test.” If the test is a representative sample of what we want students to know, than test scores should accurately show the students’ mastery of that body of knowledge.

Conversely, without testing, there is no way to establish that the student has learned anything. And based on my experience trying to employ a number of high school graduates, many of them really haven’t learned anything.

Training the Trainer

We’ve gone into hiring mode for the first time in a couple of years. This is due to two factors. First, business continues to strengthen, necessitating more workers to get the job done. Second, some of our people have moved on to greener pastures. When somebody leaves, it creates an opening for somebody else. The end result is that we’re not just calling back former employees who were laid off. We’re bringing new people into the organization.

Since it has been a couple of years since we have done that, we are relearning lessons on training new people. Our usual method of training is OJT or job shadowing. We assign the trainee to follow an existing employee for a few weeks. In theory, the trainer shows the trainee all of the ins and outs of the job. Anything the trainer doesn’t teach, can be picked up from the work instructions and operating procedures.

At least, that’s the theory.

We had one guy training for five weeks at one position. When we gave him a written test at the end of that time, he failed miserably. It turns out he couldn’t read the questions, either on the test paper or the work instructions that contained the answers. We had to let him go. Oh yeah, we’re supposed to test for literacy on the front end. So now we’ve reinstalled that part of our hiring procedures.

Another lesson we’ve relearned is to provide milestone tests to be administered during the training period. We fell into the lazy trap of waiting until the very end of training, and then testing everything at once. We had one person fail all of the tests. It turned out the trainer had used the “monkey see, monkey do” technique to have the trainee go through the motions of the job. But the trainer had never bothered to explain what the individual actions meant, or why they were included in the job.

It’s possible that the trainer had tried to explain these things. But this was the first time that particular trainer had ever trained anyone, it is very loud out on the shop floor, and the trainer was not particularly articulate in the first place. However, we realized that by virtue of hindsight. The bottlenecks to successful training could have been removed weeks earlier if we had enforced a testing regimen on both the trainee and trainer.

In our training model, testing performs a quality control function. If you want to know if your training is effective, than you devise a test that covers the material being trained. If the trainee can pass the test, then the training is effective. If they cannot pass the test, then your training is ineffective.

Obviously, if your training is going to be ineffective, you want to know as early in the process as possible. That way you can take steps to improve your training (maybe replace the trainer, maybe replace the trainee) before too much cost has been expended.

Because the testing is a pain in the butt, the trainers tend to push it off as long as possible. It’s up to management to enforce the testing regime. And as this whole incident has shown, everybody needs refresher training every now and again.

A New Passion: Off Topic Post

In the last couple of weeks a have discovered a new area of interest: molecular biology.

It started last year when I bought The Teaching Company course on Big History: The Big Bang, Life on Earth, and the Rise of Humanity. Fourteen billion years condensed into 48 lectures on CD. Woo-hoo!

One of the critical thresholds discussed in Big History was the origin of life on Earth. So a couple of months ago I bought the course The Origins of Life. To talk about the research into the origin of life, you have to talk about biochemistry. There is also a chicken and egg type of problem with the origin of life. To be recognizable as life, the organism has to have both metabolism, a way of extracting energy from the environment, and inheritable reproduction, a way of making copies of itself. Which came first, and how did they combine? Nobody knows ... yet.

One of the lectures in The Origins of Life course covered the basics of genetic coding, how RNA is built out of DNA, and how proteins are assembled by RNA. I was hooked. I know we can splice DNA, and I know we have sequenced the human genome, but I don't know what that means. So I'm on a journey to find out.

My current Teaching Company course is on fundamentals of biology, which includes a number of lectures on cellular mechanics. After listening to a couple of lectures, I went online and did some searches for molecular biology. I found a Berkeley molecular biology course, and listened to a couple of lectures. Different perspectives, but not as well structured as The Teaching Company course.

Then, on a whim, I went to YouTube and typed in "DNA Replication." I hit the mother lode. It turns out there are tons of animations for all kinds of biological processes: DNA replication, translation, and transcription. Under metabolism, there are animations for glucolysis, the Krebs cycle, the citric acid cycle, and ATP synthase.

The animations run the gamut from block diagrams to real time scale reproductions of cellular processes. What is most amazing to me is that we now actually know the shapes of the various large molecules in these processes.

This is a whole new area of human knowledge for me to explore, and I can totally get my geek on doing so. I foresee hours of fun chasing down the minutiae of various biochemical processes.

Yeah, I'm a nerd. You got a problem with that?

Greece's Problems

Greece’s fiscal problems have been much in the news recently. Essentially, the country is bankrupt. They have bond payments coming due this month, and they don’t have enough euros in the treasury to pay back the bond holders.

There is nothing unusual about that. Most governments don’t actually pay off their bond holders when the note comes due. What they do is issue new bonds, and just keep rolling the debt over. Greece’s problem is that they have hit their credit limit. The international financial markets are so nervous about how much debt has already been issued that they don’t want to allow Greece to continue digging the hole deeper.

This is not the first time a sovereign nation has run into this problem. Nations can’t handle their credit cards any better than the average American. The nation state playbook says that in a circumstance like this, you devalue your currency. Devaluation makes your exports cheaper, imports more expensive, and pays back the bond investors with a cheaper currency than they loaned you. The inflationary effects make everyone poorer, including the bondholders, who have to take a haircut on the value of their investment.

This isn’t an available option for Greece, because the Greeks don’t have their own currency anymore. They use the common European currency, the euro. If Greece defaults on its bonds, all of the countries in the Euro zone are in the splash zone. Hence the incentive for the other European Union countries to bail Greece out.

The other European nations, notably France and Germany, along with the International Monetary Fund, have agreed to be the lender of last resort to the Greek government. But there are conditions. They are requiring Greece’s government to reduce the government budget deficit from 13.9% of GDP to 3.9% over the next three years.

With their back against the wall, the Greeks are agreeing to the plan. They are cutting pensions, cutting salaries of government employees, and raising the retirement age. On the revenue side, consumption taxes are being increased one tenth, from 20% to 22%.

How big a cut is this going to be? Government spending makes up about 43% of the total Greek economy. The proposed austerity package of tax increases and budget cuts aims to get that down to about 35%. The government in Greece is going to have to shrink by about 20%. Overall, the average man on the street is going to get 10% poorer over the next couple of years, but the effect will be concentrated for government employees and retirees.

No wonder they’re protesting.

Social Utility

Eliot Spitzer, the disgraced former governor of New York, has written a piece attacking the investment bank Goldman Sachs for the on-line magazine Slate. In the column Spitzer raises the concept of “social utility.” He challenges Goldman Sachs to prove that the firm is socially useful by answering a series of questions regarding their internal trading operations.

The clear implication of the article is that Goldman Sachs is not “socially useful,” and therefore, should be eliminated, or at least reduced, by government fiat.

What a load of rot! That Spitzer can pronounce this pernicious twaddle with a straight face establishes that he hasn’t the faintest conception of how a free society functions.

You can deplore that the casino-like trading activities of Wall Street firms have swamped their traditional capital raising and capital allocation functions. You can be concerned that the lack of regulation of credit default swaps and other arcane financial instruments allowed some financial firms to pile up so much risk that they almost crashed the worldwide financial system. You can even argue that Goldman Sachs should not be allowed to sell securities that they have taken short positions against.

But banning or prohibiting activities because they lack “social utility”?

You would have a hard time providing an argument for the “social utility” of baseball cards, or beanie babies, Hummel figurines, but markets exist for all of those. The essence of a free market is that sellers offer something for sale, buyers offer payment, and a bargain is made between two willing parties. At no point does anyone have to meet a standard of serving a hypothetical greater good.

The essence of a free society is that you don’t have to justify your actions. You do have to take responsibility for them. If I wanted to light my farts on fire, and post the video on YouTube, I could do it, and I can’t think of anything of lower social utility than that.

And yet, a surprising number of people have chosen to spend their leisure in exactly that fashion.