California Tax Shenanigans

Coyote Blog cracks me up. The state of California sent him a check as a refund for some taxes. He didn't apply for the refund or anything, they just sent him a check and he cashed it. A couple of months later, California realizes it made a mistake in sending the check, so not only do they ask for the money back, they charge him interest and penalties on the amount of the check (equaling a 97% implied APR). Lucky for him the check was for a negligible amount.

Bad Day for Skilling

Skilling's boy, Richard Causey, has apparently flipped and will be testifying for the defense against Skilling and presumably Lay. This is really bad news for Skilling because it puts someone in the room testifying about meetings between Skilling and Fastow. Fastow is the real criminal in all of this Enron mess. Skilling, I think, was complicit in Fastow's dealings and for that he should go down. Causey's testimony will almost surely do that. According to the WSJ article and other books I've read on the subject, Causey is really a pretty good guy. Skilling, not so much.

I think Causey flipping might actually help Lay. I think Lay was pretty much a dupe, with his eye on politics more than on Enron. Skilling left Lay in a pretty horrible position when he abandoned ship right when the fall from grace started. The government's case pretty much depends on someone knowing that Lay knew about the financial condition of the company when Lay made remarks touting the company at a stockholder's meeting. I don't think Causey will provide that for the government. I'll think he'll provide just the, 'Lay was not in that meeting', sort of testimony.

UPDATE: Kurt Eichenwald writing for the NYT points to testimony that Causey may give based on a meeting between him, Lay and Skilling that could prove Lay knew of the financial shenanigans:

Corporate records and other documents establish that Mr. Causey engaged in frequent conversations with Mr. Lay and Mr. Skilling about accounting decisions at Enron, the former energy giant. Indeed, Mr. Causey was one of two participants in an Oct. 12, 2001, meeting with Mr. Lay that forms the basis for one charge against the former Enron chairman. With his legal liability established through a plea agreement, Mr. Causey could now be compelled to testify about his recollection of that meeting and other events.

Eichenwald wrote his own book on Enron, which I have yet to read.

Leave No Child Behind

Susan Goodkin, an advocate for gifted students in California, has an editorial in the Washington Post today pointing out that NCLB is forcing teachers to teach to the lowest common denominator instead of developing programs to effectively teach some of the most gifted students.

The drafters of this legislation didn't have to be rocket scientists to foresee that it would harm high-performing students. The act's laudable goal was to bring every child up to "proficiency" in language arts and math, as measured by standardized tests, by 2014. But to reach this goal, the act imposes increasingly draconian penalties on schools that fail to make "adequate yearly progress" toward bringing low-scoring students up to proficiency. While administrators and teachers can lose their jobs for failing to improve the test scores of low-performing students, they face no penalties for failing to meet the needs of high-scoring students.

There's little doubt in my mind that NCLB is bad law, however, I believe that it has opened up some discussion about the education of our children. The test scores are going to provide millions of data points for educators to study and find out what methods work and what methods don't work. My solution would be to give all the money the federal government spends on education back to families with children in the form of school vouchers. This too would provide millions of data points for educators to study to find out what methods work and don't work.
Paul Glastris at Political Animal advocates value-added testing. Value-added testing is probably a less worse way to do things than NCLB. In value-added the tests results indicate whether a teacher or school improved the student's test scores. However, it is harder to implement because of the nature of students to leave schools in the middle of the year and not go to the same school for several years at a time.

The most interesting thing about Glastris' comments is the fact that he's decrying NCLB for not focusing on the gifted students, however, he's more likely to be in favor of punishing high achievers in our society by increasing their taxes in favor of the low achievers who would receive the funds through some kind of government payout.

I'm sure if one were to rewrite Goodkin's editorial substituting the word taxes for education, Glastris would be beside himself. Democrats' main problem with NCLB is that it might punish their big consituency of teacher's unions. They will use any argument to show that NCLB is bad policy, even arguments that dispell their notions when it comes to taxation.

UPDATE: Glastris may be switching sides after all.

And as a matter of morality, if one has to choose between helping the low-performers or the high-performers in an impoverished school, why is the former the obvious moral choice?

Now let's replace one word:

And as a matter of morality, if one has to choose between helping the low-performers or the high-performers in an impoverished neighborhood, why is the former the obvious moral choice?

I still think he would have a major problem with that second sentence, but at least he's getting there.

UPDATE 2: Matt Yglesias brings his liberal point of view to the table:

that will to some extent involve shortchanging the best and the brightest. Insofar as we're serious about taking the most talented as far as they can go, that will involve shortchanging equity. The former strikes me as more desirable than the latter, especially for people who want to think of themselves as being on the left.

Yglesias has always had equality for all has his primary policy goal. Someone else had this as their goal before too, they were known as Communists.

Minimum Wage

The Democrats feel they have stumbled onto a perfect wedge issue to get voters back on their side. Back to the basics; raise the minimum wage.

You would think they would know, the minimum wage doesn't matter and one that is too high will be counterproductive. The number of people that actually make the minimum wage is very small and of those that do make the minimum wage, an overwhelming majority are teenagers in an after school job. The 2 largest employers of low skill workers, McDonalds and Wal-Mart, in the United States don't pay any workers minimum wage, they pay more.

The Democrats seem to think there are millions of families trying to survive on one parent's minimum wage job. While those people do exist, the numbers are so low as to be insignificant from a voting perspective. Raising the minimum wage won't have the disastrous effects Republicans point to, but it will increase some employers' willingness to hire illegal immigrants instead of low skilled American citizens.

The Democrats will try to get some play out of this issue and voters will likely support an increased minimum wage. However, the electoral result for Democrats will be nil, not enough people who actually vote care about the minimum wage and certainly won't make that a factor in their decision on who to vote into Congress.

North Korea

The Wall Street Journal has an interesting story this morning about North Korea abruptly rejecting all food aid immediately. Instead they're going to rely on their reported record harvest. The story is interesting in and of itself, however, the broader story is yet another refutation of the Communist society and the power of free markets to topple them.

Much of the focus was on agriculture. Collective farms had to deliver a portion of their output to the state-run Public Distribution System for sale to citizens at subsidized prices. But the rest could be sold at higher prices in the market. Farmers also were permitted to till private plots and sell produce in small markets that had sprung up around the country.

All this appears to have helped boost food production, augmented by big grain shipments from China and South Korea. By last year, many North Koreans were obtaining much of their food from the market, while the government's distribution system was withering.

Kim Jong Il apparently couldn't handle his distribution system withering. If he can't control the food there might be other forces around to challenge his authority:

The revival of the ration system also gives the government an important tool to control the population. "The government's influence over its people has diminished with the rise of the market," says Lee Young Hoon, an economist who tracks North Korea for South Korea's central bank. "The government doesn't want to stand by and let this happen."
...
Taking control of food sales also allows the government to clamp down on flows of money that have created rival power centers. "Some in the elite started making money. And power groups started to form around the flow of cash," says a senior U.S. official involved in North Korea policy. "There is a high level of discomfort with the redistribution of wealth and the new loyalty groupings that have been forming around people with access to money."

This seems like one last gasp for the Dear Leader. If this rationing system doesn't work well, some of the other people who have gained power through the market system might have enough power to topple the government, or at least carve out a more free market approach. Kim Jong is no dummy, he knows if there is any kind of free market, he can't last.

Byrd Amendment

Good Riddance.

The vote yesterday was praised by free-trade advocates and foreign nations, which have viewed the Byrd amendment as a sign of U.S. protectionism and its continued existence as a sign of U.S. contempt for international trade rules. They had feared that the Byrd amendment would remain intact even though several countries have imposed retaliatory duties on U.S. goods since the WTO ruled the amendment illegal.
...
The Byrd amendment became law in 2000 under pressure from steelmakers and their congressional allies who argued that companies damaged by unfair competition deserved to receive the duties the government collected in anti-dumping cases. U.S. companies have received more than $1.25 billion under the law, with more than one-third of that amount going to the Timken Co., an Ohio bearings maker, and much of the rest going to makers of candles and steel, according to Alexander's group.

Another example of a law implemented that did more harm than good.

But the law galled Canada, the European Union, Japan, Mexico and other trading partners, and in 2002 a WTO panel agreed with their argument that it meant foreign firms shipping goods to the United States could be hit illegally with a double whammy -- anti-dumping duties, plus a government handout to their U.S. competitors. After Congress refused to change the law, the countries began retaliating by imposing tariffs starting last May 1 on a variety of U.S. goods including paper, clothing, wine, machinery, cigarettes and oysters. The tariffs have totaled about $114 million in 2005.

Zubbles

Bubbles with color, it had never occurred to me that they didn't exist. Well they do now. Listen to the story on taxpayer subsidized radio.

Poor getting richer

Don Boudreaux expands on a wonderful WSJ essay from yesterday. Basically it's true that the rich are getting richer. But so are the poor. As JFK was fond of saying, "A rising tide lifts all ships". Now it may be true that there is an increasing gap between rich and poor, but the rich aren't getting rich at the expense of the poor. It's not a zero sum game, everybody's winning, everybody's standard of living is growing.

The book Cowboy Capitalism, which I reviewed here, also broached this subject. It almost looks like Stephen Moore and Lincoln Anderson lifted their data from the book. I'm sure they didn't because we've gotten the same data for many years.

Freakonomics

I just finished reading Freakonomics. I've been trying to get it read since summer, but it's a hard book to get from the library. This was an astoundingly good book that really takes good shots at conventional wisdom and the difference between morality and economics: Morality is the way people would like the world to work and economics is the way it actually works.

My favorite topic was Why do drug dealers still live with their moms. It's because drug dealing is not the profitable enterprise that it seems to be to an outsider. There are very few really successful dealers and they're at the top of the organization. The low level street dealers don't really make any more than a typical clerk at McDonalds.

The chapters on what makes good parents were also interesting. Shots are taken at the overprotective parents that watch the news for the newest dangers to their children. Swimming pools kill more kids than guns do by a wide margin, but if you asked the average person on the street they wouldn't think it was even close. The simple equation involved is Risk = hazard + outrage. The hazard is an almost fixed amount but any hazard can turn into a major risk if enough outrage is added.

This book really does show that our media and elected officials do a horrible job of pointing out things that we should really be concerned about, instead focusing on the issues that have the most outrage attached. This book would be on my required reading list if I actually believed in requiring others to do something.

New Economy

Beware of anyone claiming there's a new economy and the old rules need not apply. This from Larry Kudlow:

But I believe this is a 1970s view — one that abstracts from the Internet Google revolution and the record productivity surge, and also ignores the global spread of capitalism, which has taken hold in the post-Reagan years and has increased the demand for scarce commodities across the board.

It's a new economy like when electricity was invented, or the railroads started steaming cross country or most recently the internet boom. There is no new economy, it's the same one as ever.

Always Be Cobbling

Alec Baldwin reprising his role from Glengarry Glen Ross for the last skit on SNL. Typically the last skit is the worst one of the night and for most people this wouldn't be that great, but for anyone who has seen Glengarry Glen Ross, this is the best skit SNL has done in a couple of years.

Also check out Chris Parnell and Andy Samberg rapping and Jack Black singing the King Kong song (beware these tunes are catchy).

Eminent Domain Defenders

Here come the beneficiaries of eminent domain abuses. Blackwell Sanders Peper Martin LLP is against proposed changes to Missouri law that would limit eminent domain takings. Since Blackwell Sanders bills a lot of hours to Missouri government offices this is not that surprising, of course they would be against any laws making it harder for the government to take land and buildings. In addition to Blackwell Sanders, the Tax Increment Financing Commission cries foul. Without eminent domain, the TIF money won't be able to be funneled to the rich. The TIF Commission and Blackwell Sanders are blaming the fighters of liberty, Institute for Justice, for trying to get a ballot initiative on the next statewide ballot.

Fair Trade Coffee

Tyler Cowen writes about Fair Trade Coffee.

It depends on the alternative to market segregation. It is possible that if only a single kind of coffee can be sold, the market would opt for the more expensive coffee, involving better treatment of all workers. Even if you don't expect this today, it might happen in a few years' time. If McDonald's can improve the treatment of all the chickens it buys, maybe Starbucks or some other force will force the coffee sector to clean up its act. So development optimists should be suspicious of fair trade. It could diminish long-run general progress by giving the conscientious an outlet for their charity. By splitting up the market, we are institutionalizing especially poor treatment for one class of workers. Furthermore the high profits from price discrimination imply that producers will be keen to continue such segregation rather than end it.
...
By increasing output, fair trade can bid up wages for coffee producers. But fair trade also diverts some drinkers from Exploitation Coffee. If the switching effect is large, wages for producers of Exploitation Coffee can fall. Just as we have created two classes of market prices, so have we created two classes of market wages. If you believe that coffee producing firms have some degree of monopsony power, this is sustainable and again will increase profits but possibly worsen human misery for the poorest.

We talked quite a bit about Fair Trade coffees in a couple of my MBA classes. It always struck me as another case of people with their hearts in the right place causing more problems than they're solving. By artificially raising the price of coffee for certain farmers, they're lowering the price for those not in the club. Keep in mind, coffee bean farming is incredibly arduous work that requires long hours. However, it's the only work people can do in certain areas of the world. Fair Trade farmers get better treatment throughout their supply chain, which is a good thing, but it leaves those farmers not approved as a Fair Trade wholeseller out in the cold.

In addition to the inequities between Fair Trade farmers and non, Starbucks and other coffee companies have their own Fair Trade standard that competes with the brand Fair Trade. This further splits the coffee market that Tyler wrote about.

I think, when all is said and done, that Fair Trade will be a massive failure that will increase, not decrease, the number of coffee farmers and will end up lowering their already abysmal standard of living.

Spurlock and Mooney

Morgan Spurlock has bought the rights to "The Republican War on Science" by Christopher Mooney. Radley Balko has my thoughts exactly. Morgan Spurlock is going to cause the Mooney book to lose any credibility that it had. I don't know why the left embraces either Spurlock or Michael Moore.

Cowboy Capitalism

I just got done reading Cowboy Capitalism: European Myths, American Reality. I had been eagerly anticipating reading this book for some time. It's stated purpose was to offer analysis, debunking what much of Europe (specifically in this book, France, Germany and Italy) thinks about America's economy and American life in general. In that regard it did a fine job. One thing I felt a little shortchanged about, though, is that the author relies a little too much on opinion surveys in Part III: Unequal and Unjust. In this part of the book the author takes on Europe's biggest weakness; unemployment.

Several European economies have unemployment rates greater than 10%, which would be unconscionable in the US. However, once you have a job in Europe, you're supposedly going to be OK, but that's not really the case. The author points out that the average European fears job loss much more than their US counterpart. My own thoughts on this would be that once I had a job, that's what I had to do for the next 40 years, as it was in the '50's and 60's. But that's not the way it works here now. The average worker has a choice, jobs are plentiful and with some determination you can get one. The average time someone spends looking for a job in the United States is much less than in France, Germany and Italy.

Another point in the US's favor is the greater equality in education that we posess, especially higher education. The United Stetes ejoys a greater college premium (earnings greater than the mean for college graduates) than the 3 other countries studied and a greater percentage of students from the bottom fifth of family income go to college than the other 3 countries. This means that economic mobility is much higher in the US than in Europe.

To me it's intuitive that the US system is better than the European welfare state. The author made a good case that that's true. However, there were several points in the book that I thought he may have been reaching. The book is well worth reading, it's only about 200 pages. The author isn't the best writer in the world, which is a bit of a drawback, but Philip Roth doesn't write this type of book.

Overall the author made a good point that Germany, in particular, does more harm than good by implementing many of their employment safeguards and social safety net. The US should rely as much as possible on market forces to dictate employment policies and not follow the European model.

Embryonic Stem Cells

Advances made in embryonic stem cell research were doctored by a South Korean doctor. Embryonic stem cell research is a contentious issue, but adult stem cells which are not controversial, are never discussed. Advances from adult stem cells are actually curing people while embryonic stem cells, while they sound promising, have resulted in no actual breakthroughs. Yet, most people want the federal government to spend billions of dollars on embryonic stem cell research and leave adult stem cell research with no funding. I don't have a stake in the religious battle over embryonic stem cells, I just want whatever funding is happening to go to the research that will actually result in breakthroughs. It looks, at this point, that it's adult stem cells.

DDT and Malaria

John Stossel, a blueberry tofu pie thrower, is one of my favorite reporters. He has earned the scorn of many for his debunking of several myths over the years. Now he is taking on environmentalists yet again.

Two to three million people die of malaria every year, Uganda's health minister has said, because the U.S. government is afraid of a chemical called DDT. The United States does spend your tax dollars trying to fight malaria in Africa, but it won't fund DDT. The money goes for things like mosquito netting over beds (even though not everyone in Africa even has a bed). The office that dispenses those funds, the Agency for International Development, acknowledges DDT is safe, but it will not spent a penny on it.
...
Amazingly, there's no evidence that all this spraying hurt people. It killed mosquitoes. (DDT also kills bedbugs, which are now making a comeback.) It did cause some harm, however. It threatened bird populations by thinning eggshells. In 1962, the book "Silent Spring" by Rachel Carson made the damage famous and helped create our fear of chemicals. The book raised some serious questions about the use of DDT, but the legitimate nature of those questions was lost in the media feeding frenzy that followed. DDT was a "Killer Chemical," and the press was off on another fear campaign. DDT was banned.

But fear campaigns kill people, too. DDT is a great pesticide. The amount was the reason for the DDT problems. We sprayed far more than is needed to prevent the spread of malaria. It's sprayed on walls, and one spraying will keep mosquitoes at bay for half a year. It's a very efficient malaria fighter. But today, DDT is rarely used. America's demonization of it caused others to shun it. And while the U.S. government spends tax money fighting malaria in Africa, it refuses to put that money into DDT. It might save lives, but it might offend environmentalist zealots and create political fallout.

Steven Milloy over at Junk Science has 100 things you should know about DDT. This is a handy little primer to use when someone tries to say that DDT is more dangerous than allowing millions to die of malaria.

Amazingly when I did a blog search looking for enviros blasting Stossel's column, there were only 2 blogs that were blasting and about 12 that believe he was right. Maybe there's some hope.

Media Myths

The Free Market Project has their top 10 media myths of 2005 listed. Scaremongering will never be out of style in the MSM. Hurricanes being caused by global warming, oil companies gouging consumers and the beloved French workweek are included in the list. Check it out.

ANWR

George Will points out several things about the ANWR debate that I didn't know were true. Number 1:

Those who have and who think it is "pristine" must have visited during the 56 days a year when it is without sunlight. They missed the roads, stores, houses, military installations, airstrip and school. They did not miss seeing the trees in area 1002. There are no trees.

Am I reading this wrong or is he saying that people live and work in ANWR?

Number 2:

Flowing at 1 million barrels a day -- equal to 20 percent of today's domestic oil production -- ANWR oil would almost equal America's daily imports from Saudi Arabia. And it would equal the supply loss that Hurricane Katrina temporarily caused, and that caused so much histrionic distress among consumers. Lee Raymond, chairman and CEO of Exxon Mobil, says that if the major oil companies decided that 10 billion barrels were an amount too small to justify exploration and development projects, many current and future projects around the world would be abandoned.

I've always been led to believe that the amount was so trivial that it was hardly worth the effort.

Number 3:

there are active oil and gas wells in at least 36 U.S. wildlife refuges

Why do environmentalists even try? I guess because they're pretty effective at using the MSM to perpetuate their myths and fallacies. I've never been an opponent of drilling in ANWR, but I assumed that it was a precedent setting type of thing. I wasn't aware we were drilling in other wildlife refuges.

Kyoto

A lot of hubbub lately about the Kyoto treaty. A treaty which doesn't include China, India and the US, that's stated goal is to reduce global temperature by a completely negligible amount yet will cripple many countries' economies. This from Bjorn Lomborg author of The Skeptical Environmentalist:

To be sure, global warming is real, and it is caused by CO2. The trouble is that today's best climate models show that immediate action will do little good. The Kyoto Protocol will cut CO2 emissions from industrialized countries by 30 percent below what it would have been in 2010, and by 50 percent in 2050. Yet, even if everyone (including the United States) lived up to the protocol's rules, and stuck to them throughoutthe century, the change would be almost immeasurable-postponing warming for just six years in 2100.

Likewise, the economic models tell us that the cost would be substantial-at least $150 billion a year. In comparison, the United Nations estimates that half that amount could permanently solve all of the world's major problems: it could ensure clean drinking water, sanitation, basic health care and education for every single person in the world, now.

It seems that the economics of the situation would be that economic growth and focusing on other problems will allow us to be able to tackle global warming or climate change from a much stronger position in the future. The free market will produce the results we're looking for. From Cafe Hayek

One legitimate reason for refusing to endorse massive, worldwide government-led efforts to reduce greenhouse-gas emissions is that any such effort will inevitably be politicized. Even if the possibility exists for such regulation to make the world a better place, this possibility is remote compared to the likelihood that grandstanding politicians, special-interest groups, arrogant environmentalists who are intolerant of commercial values, and well-meaning but misinformed voters will combine to generate policies that do more harm than good.

More fundamentally, the relevant question – as always – is ‘compared to what?’The polar ice caps might well be melting, the earth’s temperature might well be rising, and human industry and commerce might well be the culprit.But this ‘culprit’ is also humankind’s great savior. It keeps us from the fates suffered by the vast majority of our ancestors: famine, plague, filth, drudgery, and ignorance. If global warming is a consequence of capitalism, I agree that it’s likely one that should be registered as a cost (although not everyone agrees that global warming is undesirable).

But if the only way to prevent or slow global warming is through political action, it is neither absurd nor irresponsible to argue that the best course of action is to ignore the problem.

Having the government involved trying to determine the best solution is certainly not the solution, therefore neither is Kyoto.

Folding Shirts

Thirty-two years on the planet and I had never learned the easiest, most effective way to fold a shirt. This is so easy, the instructions don't even need to be in English.

Introduction

This is my effort at fighting conventional wisdom, which is so often wrong. Also, it's my attempt to have fun, compile thoughts and interact with others.

Why Blueberry Tofu you may ask. A book I was reading recently,
Origins of the Crash, Roger Lowenstein pointed to an incident of a protester throwing a blueberry tofu pie at Jeff Skilling, CEO of Enron. He then went on to describe how much of financial journalism at that time was symbolic of that blueberry tofu pie. Read the book and you'll get a better understanding, but I thought blueberry tofu was kind of a funny way to explain conventional wisdom. The incident is also covered in the movie
Smartest Guys in the Room.

Anyway as Jimmy Buffett might say "that's my story and I'm sticking to it". So enjoy, don't enjoy, whatever. I'm going to write about topics that I enjoy or want to sound off about. I hope you'll join me and maybe leave a comment or five and let me know you're reading. Agree, disagree it doesn't matter, I enjoy the free exchange of ideas, that's what blogging is all about.