IRS research data has looked at tax statistics to compare different kinds of businesses to distinguish "small business" from other kinds of businesses.
Overview
Lots of business returns (about 20 million out of 44 million) involve trivial instances of self-employment or income from property that don't amount to a regular business establishment in the traditional sense.
Of the remaining 24,184,000 businesses, about 246,000 business entity returns (and the pass through income of their partners and shareholders) involve big businesses (defined at having income of $10,000,000 or more per year). Less than a third of big businesses by this definition are organized as C corporations. The vast majority of the rest are taxed as partnerships or S corporations (with 6,000 structured as sole proprietorships or individually owned rental income sources). S corporations are more common than C corporations or partnership taxed corporations including LLCs for these entities (although the biggest big businesses are almost exclusively organized as C corporations). The big businesses (other than C corporations) collectively had 1,240,000 owners (although many were owners with only passive business income).
In between are 23,942,000 small businesses. Of these, 4,942,000 have employees and 19,000,000 do not. Moreover, a significant number of 1,760,000 S corporations and 864,000 C corporations with employees (about half of the small businesses with employees) employ only the business owner or members of that business owner's family whose are claimed on the business owners' tax returns (although the exact number was not possible to discern from the data available in this study).
Of course, an entity that files its taxes on Schedule C, Schedule E or with a Form 1065 partnership return could actually be a limited liability companies or limited partnerships (and other data show that a very large portion in fact are limited liability companies or limited partnerships).
Thus, while there are 44,000,000 businesses in the U.S. that file tax returns each year, probably fewer than ten percent of them have non-owner employees.
The 24 million or so enterprises categorized as true businesses have about 20 million owners, of whom about 9.4 million of those owners receive 25% or more of their income from their small business (the "narrow" definition of small business owner).
There are 7,452,000 people who are shareholders or partners in entities taxed as partnerships or S corporations that constitute more than de minimus businesses (excluding spouses where both husband and wife are partners or shareholders in an entity). But, only 5,321,000 of them have active income or losses from a small business, and only 2,305,000 of them have active income or losses from a small business with employees (which in a signficant number of cases simply represents owner-employees of S corporations). The others are either owners of big businesses, rather than small ones, or have only passive income from the enterprise which is an investment rather than a vocation for them.
Most prior tax statistics, due to a lack of data, have greatly overstated the number of business returns that represent small businesses as we conventionally think of them. A great many businesses are vehicles for passive or occassional investors, and a great many small business owners are passive investors.
A significant number of typically closely held business forms typically associated with small businesses are actually "big businesses" with an alternate form of organization for tax purposes. The exclusion of big businesses from statistics related to "small business" based upon entity type, materially reduces the amount of business activity that is fairly characterized as coming from the small business sector and greatly diminishes the extent to which tax increases for high income taxpayers has an impact on small business. About 32% of a broad definition of "small business" income (and 29% of a narrow definition of "small business" income that includes only income from small businesses that makes up 25% or more of a small business owner's total income) is taxed at the 33% or 35% marginal tax rates; while about 86% of the business income of big businesses not structured a C corporations is taxed at those rates.
Big business income of about $220 billion in 2007 made up about a third of the taxable income attributable to non-C corporation businesses significant enough to be classified as businesses (the other two-thirds being "small business income").
The number of business owners who obtain active business income from small businesses signficiant enough to have employees other than the business owners themselves is quite modest, on the order of 3-4 million. In contrast, the typical business return represents self-employment but not a "firm" in the economics sense.
The Details
De Minimus Business Activity
Many business returns involve de minimus business activity or 1099 labor performed for another firm, or incidental rental activity of personal assets, that doesn't really amount to a full fledged business. In this category it found: 12,491,000 sole proprietorships, 5,043,000 Schedule E filers (e.g. rental income), 1,095,000 Schedule F filers (farm income), 797,000 partnerships, 2,000 S corporations and 1,000 C corporations.
Big Business
It also excluded "big businesses" with $10,000,000 or more of income at the enterprise level. This involved 5,000 sole proprietorships, 1,000 Schedule E filers, less than 500 Schedule F filers, 68,000 partnerships, 92,000 S corporations and 75,000 C corporations (about 246,000 big businesses in all).
This left as genuine "small businesses" 10,679,000 sole proprietorships, 4,592,000 Schedule E filers, 1,415,000 Schedule F filers, 2,232,000 partnerships (including entities taxes as partnerships like LLCs), 3,462,000 S corporations, and 1,563 C corporations.
Only a subset of these genuine small businesses had employers: 1,659,000 sole proprietorships, less than 500 Schedule E filers, 126,000 Schedule F filers, 553,000 partnerships, 1,760 S corporations and 864,000 C corporations. The number for S corporations and C corporations probably includes many employee-owners with no other employees who take wages rather than profits for tax reasons.
Partners and S Corporation Shareholders
Partnerships and S corporations partners or shareholders. There are 1,952,000 partners with active business income or losses from small business partnerships and 3,369,000 shareholders with active business income or losses from small businesss corprations. There are 1,855,000 partners with passive business income or losses from small business partnerships and 436,000 shareholders with passive small business income or losses from S coorporations.
There are 452,000 partners and 199,000 S corporation shareholders with active business income or losses from big business partnerships and S corporations. There are 508,000 partners and 66,000 S corporations shareholders with passive business income or losses from big business partnerships and S corporations.
In partnerships that are employers, there are 591,000 partners with active income in small businesses and another 193,000 partners with active income in big businesses. In S corporations that are employers, there are 1,714,000 shareholders with active income in small businesses and 170,000 shareholders with active income in big businesses.
In partnerships that are employers, there are 186,000 partners with passive income in small businesses and another 119,000 partners with passive income in big businesses. In S corporations that are employers, there are 226,000 shareholders with passive income in small businesses and 59,000 shareholders with passive income in big businesses.
12 August 2011
11 August 2011
Why didn't the predicted surge in teen crime happen?
Conservative criminologist John DiIulio called the fearsome horde "super-predators." He estimated that they'd number nearly 200,000 by now. Even unflappable Attorney General Janet Reno foresaw violent crime doubling among kids. . . . William Bennett, the former drug czar . . . wrote a 1996 book with DiIulio on the topic, titled "Body Count," which attributed the problem to moral decay. . . . It never happened. . . . Instead, Americans are experiencing the sharpest decline in teen crime in modern history. . . .
[Why?]
Probably more important than tighter school security . . . were these factors:
In the decade of economic expansion that ended in 2000, the number of older teens who were neither in school nor at full-time jobs dropped by nearly a third. . . . Prosperity . . . gave teens more and better options to crime. . . .
The Latino population in central cities swelled as teen crime declined. . . . Their influx . . . brought more intact families, stronger values, higher religious participation - and lower crime rates. At the same time, many of the black families they replaced moved to suburbs where poverty was less concentrated. "Kids once confined to the inner city started seeing lifestyles other than the street." . . .
Criminologists decided in the `90s to track what worked and what didn't in dealing with teen crime. Boot camps didn't work. . . . Nor did trying juveniles in adult courts. Big Brother and Big Sister mentoring worked. Foster care for delinquents worked better than lock-ups if foster parents were well trained and the goal was to return the delinquents to well-coached biological parents. Suspending delinquent kids from school or leaving them back didn't work. . . . They found that if one parent is strong and consistent, the second isn't missed when it comes to preventing delinquency.
The incarceration rate rose from 1 per 1,000 adults to 4 from the `80s to today, and it has many foes. But . . . jailing more adults sharply reduced the number of teens who commit crimes with adult accomplices.
Economist Levitt attributes teen crime's sharp drop to a reduction in unwanted children, which began with the Supreme Court's Roe v. Wade decision in 1973. Criminologist Zimring, among others, thinks it contributed but isn't as big a factor
as Levitt argues.
From here.
These gems come from a blog associated with The Atlantic magazine, linked to at Enik Rising.
It ties into a Denver Post rehash of a local think tank report on population growth in Denver neighborhoods that I saw today. Three of the top five: Green Valley Ranch, Stapleton, and Lowry, are unsurprising. They are neighborhoods that were previously uninhabited that have seen major residential development in recent years.
The other two, Five Points and Montbello, are cases that fit the dynamic described above in which neighborhoods that used to be predominantly black ghettos with dire poverty that have seen major influxes of Hispanics, as well as others, in a combination of ethnic shifts and gentrification as many black residents of these neighborhoods have moved to suburbs or to central city suburban style neighborhoods like multi-ethnic Green Valley Ranch.
Another place in the metro area that has seen a similar and rapid demographic shift is Old Town Aurora, once a center of blacks and lower income Korean immigrants, that is now increasingly Hispanic.
Perhaps not coincidentally, the Denver Post also announced the inauguration of a major overhaul of eleven Northeast Denver schools, a move that has been heralded as positive by some, while arousing extreme controversy, skepticism and complaints about insufficient community consultation from others. FWIW, I haven't followed the overhaul efforts closely and don't have a strong opinion on their merits as a result.
Aurora, also perhaps not coincidentally, has also recently announced a major urban effort directed at the area between Stapleton and Old Town Aurora, although it has been overshadowed by a bid by Aurora to develop a complex that would compete heavily with the convention center complex in downtown Denver.
Not to put to fine a point on it, but, in each case, major governmental initiatives to improve city services in metro Denver neighborhoods have coincided with declining African American populations in those neighborhoods.
Certainly, nothing as crude as Jim Crow racism as it work in Denver, that just elected a second African-American mayor despite having a fairly modest African-American population percentage for a major American central city (Hancock this time around, Webb the last time around), or in Colorado, which recently had an African-American state house speaker (Terrance Carroll). Nor does metro Denver as a whole want for predominantly Hispanic neighborhoods that have been sorely neglected in the government services department. The cause and effect relationships here are more subtle and are not simple examples of racial or ethnic favoritism.
Northeast Denver, for example, has changed due to efforts like the Ballpark Neighborhood gentrification, the transformation of "North Capital Hill" into "Uptown" and the impact of the Stapleton and Lowry developments which sent middle class traffic through these formerly low income predominantly black neighborhoods and called attention to their potential to provide short commutes to downtown.
The housing bubble opened up a lot of affordable, quality suburban homes to people from Denver including families in Northeast Denver that have not been tainted by generations of covert and overt racial discrimination in the housing market that reached a critical mass that became self-sustaining where it has established itself.
Rising real estate values in Denver from a bubble collapsed low point in 1983 until an earlier than the rest of the nation slump, particularly in central Denver, transferred considerable wealth to inner city home owners.
As post from The Atlantic article that led me to the teen crime story that I quoted observed, underclass predominantly black dysfunctional ghettos are nothing to be nostalgic for, even if one is firmly committed to improving the well being of the people who lived in those communities a few decades ago and their children. The transformation of these dysfunctional neighborhoods wasn't a punishment inflicted on its residents; it was a reflection of the fact that the people who lived there have mostly found better alternatives and moved on when barriers to their exit from those neighborhoods became less steep. The neighborhoods weren't bad because they were non-white, they were bad because they had high crime, high truancy, governmental underinvestment, high teen pregnancy, few viable businesses, and high unemployment that had deep and obvious causes in American history.
Improving neighborhood well being makes neighborhoods tolerable to people who have any choice at all about where they live and has led to rapid population growth in these neighborhoods. Creating demand for housing in these neighborhoods boosts property values and makes life more tolerable for those who continue to live there. Even renters who are forced to leave due to rising rents in these neighborhoods spur the construction of newer and better rental housing in the metro area that if often better than what they left behind. The line between someone who is a slum lord who has received a windfall from the changes in these neighborhoods and someone who is a civic minded booster of a neighborhood is often a thin one.
Capitalism may not always seek out hard case situations to invest in for the long run, but it doesn't follow that it profits from large scale systemic socio-economic misery either. It encourages profitable mutual growth, it just sometimes has a hard time getting the ball rolling because not enough people have enough vision to bring the needed investment and suspicion abounds because it is hard to tell who gains and loses from the changes in advance. But, when your current neighborhood is one of the least desirable in the metro area, as was the case for a significant share of Northeast Denver in the 1980s and into the 1990s, it is hard for change, either to the neighborhood or for those who end up leaving the neighborhood as a result, to be a terrible thing or a case of downward mobility.
10 August 2011
Wealth and Reproduction
Until about a decade ago, the recent trend was for the poor to have more children than the rich, both domestically and internationally. But, this trend has since reversed in the U.S., largely due to the impact of fertility treatments and factors surpressing fertility in the poor like a reduction in teenage pregnancy rates. But, this was a historical anomaly for the century or so that the trend of the poor having more children persisted. Prior to that point, the well to do in places as different as early modern England and China consistently had more surviving children than the poor.
It isn't unreasonable to infer that the rich had more children in part because mothers and children were less likely to die prematurely, for example, due to malnutrition, and that the reversal in the number of surviving children per family was due substantially to the fact that improved medical care caused almost every mother to survive childbirth and almost every child to live to adulthood.
It isn't unreasonable to infer that the rich had more children in part because mothers and children were less likely to die prematurely, for example, due to malnutrition, and that the reversal in the number of surviving children per family was due substantially to the fact that improved medical care caused almost every mother to survive childbirth and almost every child to live to adulthood.
09 August 2011
Closely Held Public Companies
The stereotypical publicly held company has few, if any, of the people who provided the company with cash in exchange for equity still on its shareholder rolls, have few shareholders who hold blocks of stock even as big as 5%, would need hundreds or thousands of shareholders to agree simply to secure a majority in interest in a shareholder vote, have a board of directors that is effectively self-perpetuating and owes its allegiance primarily to senior management, and have investors who are mostly operating according to the "Wall Street Rule" of selling shares in companies that are ill-managed rather than trying to reform the company by influence members of its board of directors. Institutional investors in these companies generally choose to provide a rubber stamp to management rather than expressing opinions on management issues, in part, out of fear of the securities law implications of doing so.
The famous separation of ownership and control in this companies is at the heart of the criticism of American corporate governance which is prone to excessively compensating senior executives, providing senior executives with poor incentives that can encourage systemic risk in the economy as a whole, and not holding mediocre management teams accountable for their suboptimal management of their companies.
But, this isn't description isn't a good match to an important subgroup of public companies which I oxymoronically call "Closely Held Public Companies." A new Pennsylvania State University College of Business Administration study entitled "Are Busy Board Detrimental?", looks at the subclass of newly public companies whose IPOs were launched by venture capitalist firms.
These firms, a thousand of which are reviewed, don't fit the stereotype. Almost all of the new investors either directly supplied cash equity to the company in exchange for stock (an average of $72 million each). The average seven board members own or control 33% of the stock of these companies, and the average "busy" board member, defined as serving on three or more board, has an investment of at least $5 million in the company. The typical board has four venture capitalist firm executives (who disproportionately serve on audit and compensation committees and as chairmen of the board), two insider executives who are directors, and one other outside director (who two-thirds of the time serves on no more than one other board and usually serves on that board of directors alone). The board membership was typically determined by an investment bank that took the company public, a venture capital firm, and senior management in a negotiated effort to please IPO investors. Typically, a few dozen shareholders control a majority in interest of the company's shares and even the big investors who do not have directorships know each other personally. The senior management team, rather than being appointed by the board after a talent search, is typically the group of individuals whose efforts as managers grew the business until it could be attractive enough to outside investors to go public. The venture capital firms that own a large share of these newly public firms have a business model that calls for active management of the newly public firms for at least a medium term time frame (ca. 3-5 years at least), in order to continue to grow their hands on, long term investment in active indirect management of the company so it can thrive, as do the employee-owner senior managers who usually expect to spend at least as many more years running the firm that they took public.
While these firms are nominally publicly traded because they have made a public offering of securities and have some small time passive investors, their governance arrangements are more like closely held private companies with significant non-employee investors, than they do like stereotypical publicly held companies. Most importantly, they do not have a meaningful separation of ownership and control.
So, while the study purports to ask if "Busy Boards" are detrimental, the confounding variable in the study is very strong director financial interest in the venture upon which the director serves and generally good corporate governance standards of new VC launched IPOs, avoid the criticisms of busy boards raised with more established firms.
The 95% of the directors of these firms aren't really busy they have day jobs that include being a director, either incident to their role as a venture capital firm executive, or incident to their job as a senior executive of the board's firm, or because they serve on only one board, or because they don't have a day job for some reason. Only 5% or less of the directors of these firms (just 20% have even one such person) are outsiders who aren't VC executives who serve on three or more boards and have a day job as well, and the world does still have a few overachievers left who can somehow handle that burden gracefully, and if they can't, they have six other board members who can pick up the slack.
Thus, busy directors seem like a non-issue in this study mostly because the term was defined in an inappropriate way that disregards the nature of the director's day job, and because the governance positives in these closely held public companies overwhelm any governance negatives that may flow from having busy directors. Not surprisingly, indicators of accountable management, like lower than average CEO pay and higher than average company performance are typical of these newly public companies.
The serious corporate governance problem in the American economy is not with newly public firms that have just completed IPOs, but with firms whose long term investors have sold their shares, whose initial dynamic management team has been replaced by executives chosen in interview rather than exceptional performance building this very business, whose highly financially interested venture capitalist directors and insider directors have been replaced by toadies of the new management team with a weak financial interest in the firm's performance, and whose new institutional investor owners have abdicated a role as active supervisors of the senior management team, in part because corporate and securities law discourages this, and in part because this isn't a part of their business model. Once this stereotypical separation of ownership and control takes hold, pressure on management to refrain from self-dealing and perform or be replaced is gone. The new focus starts to center on providing an unattractive target to hostile takeovers by means unrelated to actual financial performance and on growing the scale of the business without regard to profitability, because scale rather than profitability or management performance, drives the ability to pay senior executive compensation in these firms (for which cash flows are great enough to sustain large executive pay packets even when the company is doing poorly).
Typically, once a firm gets its initial infusion of IPO equity, retained earnings and corporate bond offerings, rather than new equity offerings, are the main sources of new capital for the firm, except at points in the business cycle where the company is performing well and appears to be overvalued in the long run, allowing it to secure a rare major new infusion of equity from the public with a modest number of shares. Since it generally doesn't need shareholders to raise new capital, can get away with not giving shareholders any meaningful role in the appointment of its board of directors or executive compensation, and can discourage hostile takeovers with poison pills and other barriers to changes in control and ownership even when it would make economic sense in the absence of those self-created barriers, these firms can get away with giving shareholders very little and the pressures from above on senior management are far too weak to be optimal.
The most visible symptom of this governance problem is the overcompensation of self-dealing senior executives. But, the deeper issue that matters more to the economy is the opportunity cost associated with lax ownership permitting mediocre executives who always are at the held of some share of big businesses to managing the assets of big business less well than another management team that knew that it would be held accountable for its performance could. Since large, publicly held companies make up the vast majority of economic activity and employment in the United States, even a modest subset of poorly managed big businesses are a critical problem for the health of the American economy as a whole.
The solution is to find ways to well established large publicly held companies to act more like the closely held public companies whose IPOs have just been launched by venture capitalist firms.
* Control needs to be vested more firmly in institutional investors with strong financial incentives to do so, who take the kind of interest in and have the expertise in monitoring and holding accountable the senior management team in performance, compensation and transparency, are capable of the kind of collective ownership action, and invest at least for the medium term in the way that venture capital firms do. The biggest barriers to this are (1) in the proxy rules for nominating director candidates and information about them, and getting this on a ballot sent to all shareholders (the current norm is a Soviet style director's ballot), and (2) in the securities laws that could construed collective shareholder action as some form of securities law violation or other civil wrong.
* Publicly held companies need to have incentives to left shareholders, rather than senior management, decide how to reinvest profits from the firm. Further, the tax and corporate law incentives that favor debt over equity, which increase systemic risk during recessions, need to go, if effective shareholder governance is possible. Securities law plays a role here as well. Equity holders can bring securities fraud suits when stock prices suddenly plunge as a result of the late disclosure of material information about a company. Debt holders can bring securities fraud suits, in general, only when the company defaults, and by then it has usually declared bankruptcy and there is nothing to collect out of in a securities fraud action once the bankruptcy is complete. So securities fraud liability analysis favors debt financing over equity financing.
* Public companies need to have at least a balance between incentives to split up and incentives to merge, in both the tax law and in corporate governance practice (e.g. executive compensation practices) so that companies do not grow big simply for the sake of being big. We need to remove systemic incentives to become too big to fail and to unduly concentrate the market with fewer bigger firms (even when this doesn't mean that a firm has a monopoly or near monopoly in any given product market).
* The law needs to discourage poison pills and other barriers to hostile takeovers that prevent the market from disciplining poorly performing firms. For example, it needs to end the race to the bottom choice of law rules that make management friendly Delaware corporate law the norm on corporate governance issues. It may be most sensible to simply require that all publicly held companies have their governance conducted according to a federal corporate code, rather than state law, with Congress acting pursuant to its commerce clause powers, given the indubitable interstate commerce impacts of federal corporate law, which securities laws have already effectively taken control of in many important respects.
The market is stumbling in a Coasian way towards this end.
* Greater leverage prevents profits from being entirely reinvested in the firm even if it is suboptimal to do so, holds management accountable to minimum performance measures, is easy for investors to monitor and act collectively on behalf of, minimizes the kinds of disclosures that materially impact the value of the assets in light of information asymmetry, and uses principal payments to force borrowing companies to continually renegotiate the terms of their financing in order to continue to operate.
* Going private transactions remove the debt-equity imbalances that face publicly held companies and permit the more functional corporate governance regime of privately held companies to apply.
* Pre-packaged bankruptcy plans and corporate auctions facilities with bankruptcies allow overleveraged companies to survive economic downturns by sacrificing some share of long term subordinated and general bond creditor's investment.
But, the measures cobbled together in the private sector under current law are half measures that still leave big business much less well governed than it should, and successful reform is necessary for the long term prosperity of the American economy.
The famous separation of ownership and control in this companies is at the heart of the criticism of American corporate governance which is prone to excessively compensating senior executives, providing senior executives with poor incentives that can encourage systemic risk in the economy as a whole, and not holding mediocre management teams accountable for their suboptimal management of their companies.
But, this isn't description isn't a good match to an important subgroup of public companies which I oxymoronically call "Closely Held Public Companies." A new Pennsylvania State University College of Business Administration study entitled "Are Busy Board Detrimental?", looks at the subclass of newly public companies whose IPOs were launched by venture capitalist firms.
These firms, a thousand of which are reviewed, don't fit the stereotype. Almost all of the new investors either directly supplied cash equity to the company in exchange for stock (an average of $72 million each). The average seven board members own or control 33% of the stock of these companies, and the average "busy" board member, defined as serving on three or more board, has an investment of at least $5 million in the company. The typical board has four venture capitalist firm executives (who disproportionately serve on audit and compensation committees and as chairmen of the board), two insider executives who are directors, and one other outside director (who two-thirds of the time serves on no more than one other board and usually serves on that board of directors alone). The board membership was typically determined by an investment bank that took the company public, a venture capital firm, and senior management in a negotiated effort to please IPO investors. Typically, a few dozen shareholders control a majority in interest of the company's shares and even the big investors who do not have directorships know each other personally. The senior management team, rather than being appointed by the board after a talent search, is typically the group of individuals whose efforts as managers grew the business until it could be attractive enough to outside investors to go public. The venture capital firms that own a large share of these newly public firms have a business model that calls for active management of the newly public firms for at least a medium term time frame (ca. 3-5 years at least), in order to continue to grow their hands on, long term investment in active indirect management of the company so it can thrive, as do the employee-owner senior managers who usually expect to spend at least as many more years running the firm that they took public.
While these firms are nominally publicly traded because they have made a public offering of securities and have some small time passive investors, their governance arrangements are more like closely held private companies with significant non-employee investors, than they do like stereotypical publicly held companies. Most importantly, they do not have a meaningful separation of ownership and control.
So, while the study purports to ask if "Busy Boards" are detrimental, the confounding variable in the study is very strong director financial interest in the venture upon which the director serves and generally good corporate governance standards of new VC launched IPOs, avoid the criticisms of busy boards raised with more established firms.
The 95% of the directors of these firms aren't really busy they have day jobs that include being a director, either incident to their role as a venture capital firm executive, or incident to their job as a senior executive of the board's firm, or because they serve on only one board, or because they don't have a day job for some reason. Only 5% or less of the directors of these firms (just 20% have even one such person) are outsiders who aren't VC executives who serve on three or more boards and have a day job as well, and the world does still have a few overachievers left who can somehow handle that burden gracefully, and if they can't, they have six other board members who can pick up the slack.
Thus, busy directors seem like a non-issue in this study mostly because the term was defined in an inappropriate way that disregards the nature of the director's day job, and because the governance positives in these closely held public companies overwhelm any governance negatives that may flow from having busy directors. Not surprisingly, indicators of accountable management, like lower than average CEO pay and higher than average company performance are typical of these newly public companies.
The serious corporate governance problem in the American economy is not with newly public firms that have just completed IPOs, but with firms whose long term investors have sold their shares, whose initial dynamic management team has been replaced by executives chosen in interview rather than exceptional performance building this very business, whose highly financially interested venture capitalist directors and insider directors have been replaced by toadies of the new management team with a weak financial interest in the firm's performance, and whose new institutional investor owners have abdicated a role as active supervisors of the senior management team, in part because corporate and securities law discourages this, and in part because this isn't a part of their business model. Once this stereotypical separation of ownership and control takes hold, pressure on management to refrain from self-dealing and perform or be replaced is gone. The new focus starts to center on providing an unattractive target to hostile takeovers by means unrelated to actual financial performance and on growing the scale of the business without regard to profitability, because scale rather than profitability or management performance, drives the ability to pay senior executive compensation in these firms (for which cash flows are great enough to sustain large executive pay packets even when the company is doing poorly).
Typically, once a firm gets its initial infusion of IPO equity, retained earnings and corporate bond offerings, rather than new equity offerings, are the main sources of new capital for the firm, except at points in the business cycle where the company is performing well and appears to be overvalued in the long run, allowing it to secure a rare major new infusion of equity from the public with a modest number of shares. Since it generally doesn't need shareholders to raise new capital, can get away with not giving shareholders any meaningful role in the appointment of its board of directors or executive compensation, and can discourage hostile takeovers with poison pills and other barriers to changes in control and ownership even when it would make economic sense in the absence of those self-created barriers, these firms can get away with giving shareholders very little and the pressures from above on senior management are far too weak to be optimal.
The most visible symptom of this governance problem is the overcompensation of self-dealing senior executives. But, the deeper issue that matters more to the economy is the opportunity cost associated with lax ownership permitting mediocre executives who always are at the held of some share of big businesses to managing the assets of big business less well than another management team that knew that it would be held accountable for its performance could. Since large, publicly held companies make up the vast majority of economic activity and employment in the United States, even a modest subset of poorly managed big businesses are a critical problem for the health of the American economy as a whole.
The solution is to find ways to well established large publicly held companies to act more like the closely held public companies whose IPOs have just been launched by venture capitalist firms.
* Control needs to be vested more firmly in institutional investors with strong financial incentives to do so, who take the kind of interest in and have the expertise in monitoring and holding accountable the senior management team in performance, compensation and transparency, are capable of the kind of collective ownership action, and invest at least for the medium term in the way that venture capital firms do. The biggest barriers to this are (1) in the proxy rules for nominating director candidates and information about them, and getting this on a ballot sent to all shareholders (the current norm is a Soviet style director's ballot), and (2) in the securities laws that could construed collective shareholder action as some form of securities law violation or other civil wrong.
* Publicly held companies need to have incentives to left shareholders, rather than senior management, decide how to reinvest profits from the firm. Further, the tax and corporate law incentives that favor debt over equity, which increase systemic risk during recessions, need to go, if effective shareholder governance is possible. Securities law plays a role here as well. Equity holders can bring securities fraud suits when stock prices suddenly plunge as a result of the late disclosure of material information about a company. Debt holders can bring securities fraud suits, in general, only when the company defaults, and by then it has usually declared bankruptcy and there is nothing to collect out of in a securities fraud action once the bankruptcy is complete. So securities fraud liability analysis favors debt financing over equity financing.
* Public companies need to have at least a balance between incentives to split up and incentives to merge, in both the tax law and in corporate governance practice (e.g. executive compensation practices) so that companies do not grow big simply for the sake of being big. We need to remove systemic incentives to become too big to fail and to unduly concentrate the market with fewer bigger firms (even when this doesn't mean that a firm has a monopoly or near monopoly in any given product market).
* The law needs to discourage poison pills and other barriers to hostile takeovers that prevent the market from disciplining poorly performing firms. For example, it needs to end the race to the bottom choice of law rules that make management friendly Delaware corporate law the norm on corporate governance issues. It may be most sensible to simply require that all publicly held companies have their governance conducted according to a federal corporate code, rather than state law, with Congress acting pursuant to its commerce clause powers, given the indubitable interstate commerce impacts of federal corporate law, which securities laws have already effectively taken control of in many important respects.
The market is stumbling in a Coasian way towards this end.
* Greater leverage prevents profits from being entirely reinvested in the firm even if it is suboptimal to do so, holds management accountable to minimum performance measures, is easy for investors to monitor and act collectively on behalf of, minimizes the kinds of disclosures that materially impact the value of the assets in light of information asymmetry, and uses principal payments to force borrowing companies to continually renegotiate the terms of their financing in order to continue to operate.
* Going private transactions remove the debt-equity imbalances that face publicly held companies and permit the more functional corporate governance regime of privately held companies to apply.
* Pre-packaged bankruptcy plans and corporate auctions facilities with bankruptcies allow overleveraged companies to survive economic downturns by sacrificing some share of long term subordinated and general bond creditor's investment.
But, the measures cobbled together in the private sector under current law are half measures that still leave big business much less well governed than it should, and successful reform is necessary for the long term prosperity of the American economy.
Austerity Plans Hurting Job Growth
It turns out that layoffs of government workers caused by federal, state and local government belt tightening is a major factor in disappointing employment growth. The private sector is creating new jobs, but government cutbacks are taking away a meaningful share of newly created jobs.
Lithuania Has Paramilitary Parking Enforcement
If you think that the Denver Boot is the cutting edge in tough on crime parking enforcement, you've obviously not been to Vilnius, Lithuania lately, where the mayor has taken to running over illegally parked cars with an armored personnel carrier.
Obvious, this is a highly wasteful and destructive approach to parking enforcement. In contrast, here in Denver our last Mayor made a name for himself with merciful random act of kindness meter feeding to thwart parking enforcement, rather than paramilitary tactics, and the city council recently voted to relax a citizen adopted car impoundment ordinance.
But, when in Vilnius, stay out of the bike lane.
(It's actually a hoax, and is really is an add for a Swedish radio show, which makes it merely a safely entertaining pipe dream.)
Obvious, this is a highly wasteful and destructive approach to parking enforcement. In contrast, here in Denver our last Mayor made a name for himself with merciful random act of kindness meter feeding to thwart parking enforcement, rather than paramilitary tactics, and the city council recently voted to relax a citizen adopted car impoundment ordinance.
But, when in Vilnius, stay out of the bike lane.
(It's actually a hoax, and is really is an add for a Swedish radio show, which makes it merely a safely entertaining pipe dream.)
How Stable Is Childhood IQ?
[T]he correlation between [an IQ] score obtained at 5 and the eventual adult score is probably no more than .5 or so. However, the main limitation seems to be unreliability of any single administration of the test to a child that young. Scores averaged over several administrations are a very good predictor already at a fairly young age. The average of three scores obtained at age 5, 6 and 7 correlates about .85 with adult score. This suggests that while it is difficult to measure a child's IQ in any single sitting, the IQ itself is relatively fixed already by age 7 or so . . .
This is using data in which the IQ was tested *three times* over the interval listed and the results averaged. A single measurement at age 5 would probably do worse than what is listed below. [N=61] . . .
age range correlation with adult score
42,48,54 months .55
5,6,7 .85
8,9,10 .87
11,12,13 .95
14,15,16 .95
. . . . another study of 80 kids [based on a single test at age 7] that appears in Bias In Mental Testing. . . found a .7 correlation between scores at 7 and 17.
From here.
Another study looked at pre-formal instruction number sense in two hundred children who were four years old and found that "the precision of children's estimations correlated with their math skill. That is, the children who could make the finest-grained estimations in the dot comparison task (for example, judging that eight yellow dots were more than seven blue dots) also knew the most about Arabic numerals and arithmetic. According to the researchers, this means that inborn numerical estimation abilities are linked to achievement (or lack thereof) in school mathematics."
This is also supported by earlier research, with a sample size of sixty four, which use the same test involving estimating a number of dots in a time period too small to count them and comparing it to past academic performance.
Good "number sense" at age 14 correlates with higher scores on standardized math tests throughout a child's life up to that point and weaker "number sense" at 14 predicts lower scores on those standardized tests. . . . They then examined the teenagers' record of performance in school math all the way back through kindergarten, and found that students who exhibited more acute number sense had performed at a higher level in mathematics than those who showed weaker number sense, even controlling for general intelligence and other factors.
Thus, it both showed mathematical ability to be somewhat distinct from general IQ and showed that this measurement is strongly tied to academic performance in mathematics despite not having any formally overlapping content base.
It also suggests that tracking in educational instruction based on multiple middle school performances is as accurate as tracking at later points in an educational career in sorting students by IQ which is closely related to academic ability (although it lacks a component akin to conscientiousness).
The study does not test if it is possible to train children to develop number sense, something that is not generally done in modern math curricula, and if such training would bear fruit in generalized mathematical ability. It also offers little guidance regarding the most sensible educational strategy to take knowing the some students have a greater aptitude for learning math than others.
Where Are The Rich Getting Richer?
Is growing income inequality in the United States a national pheneomena?
The answer is "no", according to a report released back in 2006 entitled “Income Distribution and the Information Technology Bubble”, by James K. Galbraith and Travis Hale at the University of Texas (abstact utip.gov.utexas.edu/abstract.html#UTIP27).
Instead, a handful of IT and financial hot spots are driving almost all of the increaes in income inequality for the United States as a whole.
The resulting narrative is a slight variant of the finance industry's compensation is surging argument, expanded to include the information technology sector as well.
The answer is "no", according to a report released back in 2006 entitled “Income Distribution and the Information Technology Bubble”, by James K. Galbraith and Travis Hale at the University of Texas (abstact utip.gov.utexas.edu/abstract.html#UTIP27).
Instead, a handful of IT and financial hot spots are driving almost all of the increaes in income inequality for the United States as a whole.
It is widely recognized that income inequality increased in the 1990’s, but nobody knows quite why. . . .
One says the culprit was declining unionization. Another ties it to immigration and outsourcing. A third theory is that the demand for high-level cognitive skills has increased, while other explanations range from changes in executive compensation to the lack of policy initiatives directed toward the working poor. . . .
Their study used data on average income and population by county available from the Bureau of Economic Analysis, available at bea.gov/bea/regional/reis. . . . their work does not examine inequality among individuals, but rather differences in average income across counties. . . . income inequality was flat in the first half of the 1990’s, then rose sharply in the second half. After 2000, the inequality index declined again.
[Which] counties that contributed the most to the increase in income inequality from 1994 to 2000 [?] . . . the five biggest winners in this period were New York; King County, Wash. (with both Seattle and Redmond); and Santa Clara, San Mateo and San Francisco, Calif., the counties that make up Silicon Valley. The five biggest losers were Los Angeles; Queens; Honolulu; Broward, Fla.; and Cuyahoga, Ohio.
What do the counties in the first list have in common? Their economies were all heavily driven by information technology in the late 90’s. This is true for the rest of the list of winners as well. Harris, Tex. (home to Houston and Enron); Middlesex, Mass. (home to Harvard and M.I.T.); Fairfield, Conn.; Alameda, Calif.; and Westchester, N.Y., were also among the top 10 income gainers in this period.
[H]alf the 80 American companies in the CNET Tech Index are in those top 10 counties. Furthermore, when income inequality decreased after 2000, the income drop in the high-tech counties contributed most to the decline.
New York, interestingly enough, showed large increases in per capita income both during the Internet boom and the Internet winter that followed.
[T]he income gains of the 1990’s associated with the technology bubble not only accrued to a relatively small number of people but also occurred in a relatively small number of geographic areas. . . . what would have happened to the index if just 4 of the 3,100 counties in the United States exhibited average income growth in the technology boom years. The four are Santa Clara, San Mateo, San Francisco (all associated with Silicon Valley) and King County, Wash. (home of Microsoft). . . . If the per capita income in just these four counties had grown at the same rate as the average in the United States, income inequality across counties would have changed little in the late 1990’s. In other words, only four counties drove most of the change across the 3,100 counties.
The resulting narrative is a slight variant of the finance industry's compensation is surging argument, expanded to include the information technology sector as well.
08 August 2011
Biggest Attorneys' Fee Award Ever?
Mattel asserted a copyright claim that was stunning in scope and unreasonable in the relief it requested. . . . MGA’s successful defense ensured that well-resourced plaintiffs cannot bend the law to suit their pecuniary interests. For these reasons, and pursuant to 17 U.S.C. § 505, the Court awards MGA $105,688,073.00 in attorneys’ fees and $31,677,104.00 in costs.
From here.
The issue at trial regarding the question of whether an MGA line of fashion dolls similar to those of Mattel were copyright infringing, when the line of dolls was invented by a Mattel employee, arguably on his own time, who took the idea to MGA that invested in it and made it a great success through their marketing efforts.
I simply cannot fathom how either side could run up that amount of attorneys' fees in a single copyright infringement case. Actually, I can. I'm sure that a huge amount of money was spent on discovery and expert witness fees. But, there is no way it would have had to cost that much if the case management had been better.
This is a case where the big picture conceptual issues on how the idea was developed and how similar it was to the Mattel idea dwarf the fact intensive details when it comes to liability and where both parties would have had sophisticated managerial accounting systems that would have made damages relatively workable to discern in great detail.
This is a case that could have been litigated quite adequately between two less flush parties for hundreds of thousands of dollars each, instead of hundreds of millions.
Mattel asked for $1 billion in damages but was awarded about $10 million by a jury. The judgment was reversed on an interlocatory appeal and they ended up losing the case.
I don't have great sympathy for either party in this case, and the 10th Circuit's contract interpretation that was central to a defeat for Mattel was somewhat strained. But, it is a symptom of a grossly flawed court process that it is possible to reasonably spend that kind of money on this kind of case.
Another Not So Bright Texas Republican
Academic prowess is clearly not an asset in the task of becoming Governor of Texas or to becoming a GOP Presidential nominee.
First, we had George W. Bush (the GOP Presidential nominee in 2000 and 2004) who was a mediocre student at Yale in the era before admissions we are merit based as they are today (although his father, George H.W. Bush, was a quite intelligent man with real academic talent and senior civil service experience as C.I.A. director), who went on from the Texas Governorship to become President.
Arizona Senator and 2008 GOP Presidential nominee John McCain was also a mediocre college student at the U.S. Naval Academy:
Sarah Palin, McCain's Vice Presidential nominee was also a pretty mediocre college student and known for her lack of a command of policy issues on the campaign trail as well.
Now, Rick Perry, a 2012 Presidential candidate with the same political credentials as George W. Bush, however, makes George W. Bush look like a genius by comparison to any of these other candidates, given is truly dismal performance at Texas A&M.
Like George W. Bush, Rick Perry was a cheerleader in college.
While college grades are not the be all and end all of life, I'd think we could expect a bit more of people who want to rule the free world.
First, we had George W. Bush (the GOP Presidential nominee in 2000 and 2004) who was a mediocre student at Yale in the era before admissions we are merit based as they are today (although his father, George H.W. Bush, was a quite intelligent man with real academic talent and senior civil service experience as C.I.A. director), who went on from the Texas Governorship to become President.
Arizona Senator and 2008 GOP Presidential nominee John McCain was also a mediocre college student at the U.S. Naval Academy:
McCain came into conflict with higher-ranking personnel, and he did not always obey the rules, which contributed to a low class rank (894 of 899), despite a high IQ. He did well in academic subjects that interested him, such as literature and history, but studied only enough to pass subjects he struggled with, such as mathematics.
Sarah Palin, McCain's Vice Presidential nominee was also a pretty mediocre college student and known for her lack of a command of policy issues on the campaign trail as well.
Now, Rick Perry, a 2012 Presidential candidate with the same political credentials as George W. Bush, however, makes George W. Bush look like a genius by comparison to any of these other candidates, given is truly dismal performance at Texas A&M.
…In his freshman and sophomore year, Perry struggled with core science classes, earning D’s in several organic chemistry classes and C’s in general chemistry and physics.
But after Perry switched his major at the beginning of his fall semester in 1970, his grades didn’t improve. Perry got a C in Reproduction in Farm Animals, a C in genetics, a D in Feeds & Feeding, a C in Sheep & Angora Goat Production and two C’s in animal breeding classes.
Many of Perry’s other classes involved military education. Perry has previously credited his time in the A&M Corps of Cadets with giving him the necessary discipline to complete school.
Perry got two C’s in Development of Air Power and took four levels of World Military Systems, earning two C’s, a B and an A. The A was one of only two Perry earned at college — the other was for a class called Improv. of Learning.
The future governor only took one political science class while he was in school — American National Government, for which he earned a B. Other classes outside of Perry’s major included Shakespeare and Writing for Professional Men, which earned him two D’s.
Perry took two summer sessions before his senior year but still needed two more after the rest of his class graduated to complete a degree. He graduated in August of 1972.
Like George W. Bush, Rick Perry was a cheerleader in college.
While college grades are not the be all and end all of life, I'd think we could expect a bit more of people who want to rule the free world.
05 August 2011
Bust Hit New Single Family Homes Strongest; Employment Recovery Slow
The Real Estate Bust Was New Single Family Home Investment Dominated
Many components of new real estate investment took a hit in the housing bubble collapse that triggered the financial crisis. But, the dominant component of reduced construction investments has come from new single family homes. This is about 20% of the pre-bust peak right now and still well below late 20th century historical norms. New single family home investment plummeted to far below historical levels in the housing bubble collapse and remains where it fell today.
Other components of construction investments (single family home improvement, multifamily, commercial, etc.) have merely experienced a modest bump in the road and aren't far below pre-financial crisis levels today, although they too have experienced a slump.
The Employment Recession
Meanwhile, while the latest monthly job creation figures weren't horrible, in the bigger picture, the U.S. economy is in a pickle.
The number of jobs lost relative to the pre-recession peak is currently about the same point as it was at the deepest post-WWII recession where it stayed for only a couple of months in 1948. The situation has been that bad in the cuurrent employment recession for about two year and two months.
Jobs lost relative to pre-war jobs has been worse than the five months it spent there in 1957, and the situation has been that bad for about two yearsand four months. The employment recession has been worse than every employment recession since 1990 for two years and eight months already. These are the so called "post-modern" employment recessions which have tended to be more shallow, but longer lasting.
Four months from now, this will be the longest post-Great Depression employment recession in history, surpassing the four year long job slump that followed the tech bust in 2001.
It is almost certain that this employment recession will last much longer than four years. It is very unlikely that employment will recover to pre-financial crisis levels anytime in 2012 either given the trendlines of this employment recession.
Nothing that is going on in the domestic policy agenda or in the global economic situation suggests that the United States will be changing these trendlines dramatically any time soon. The U.S. government and almost all states (and most first world foreign countries) are taking Hoover style austerity measures instead of injecting demand into the economy with Keynsian/New Deal type stimulus efforts. The only remotely political plausible step that the U.S. could take which would provide a government spending boost that could pull the economy out of the jobs recession sooner would be to start some major new war (a solution that I heartily disfavor).
Given the growth in the labor force over three or four years that occurs naturally, the United States will be hard pressed to return to pre-financial crisis employement per population levels until late in 2013 at the earliest, and it could take until 2014 or later, or might never reach pre-financial crisis levels and produce a structural reduction in the amount of people employed in the U.S. relative to its population.
Current trendlines for this employment recession suggest a recover to pre-financial crisis levels sometime around the fall of 2013, about six year after it started.
2012 Election Implications
Naturally, if you are President Obama's campaign manager, this is not good news. Empirical studies of the impact of the economy on voter behavior in the election suggest that the relevant time frame starts around January of the year of the election, i.e. January 2012 in this election, about five months from now. Nobody thinks that the economy will have recovered to pre-financial crisis levels by then in employment, which is the most politically sensitive economic indicator. A double dip recession isn't out of the realm of possibility.
Republicans in the House of Representatives and the newly inked debt limit deal, however, severely restrain his ability to use government spending and employment to change the current trend, or enact major new economic legislation of any kind. They are playing to deny him any victories to campaign upon and their desire to deny him victories so will surely only heighten as the election grows closer.
Obama can try to blame Republicans for inaction, but only if he first makes a dramatic change of course and starts vigorously advocating for a course of action that Republicans refuse to take. Obama can hope that the Republicans nominate someone unelectable whose campaign will self-destruct and alienate the American people, but he has essentialy no say in that process. Republican brinksmanship in the debt limit deal wasn't well played in the court of public opinion. But, counting on Republicans to screw up isn't exactly a pro-active strategy that inspire much confidence.
The optimist narrative says that a Republican resurgence peaked too soon for Republicans to experience any further gains in 2012. The Tea Party gains in the off year 2010 election were a high water mark at which President Obama had already hit bottom and the Republican Party's enthusiasm levels had surged as much as they could. But, in 2012, voters can see from two years of Tea Party efforts to govern in Congress and in state governments where they made inroads, that their style of governing has little to recommend it. Divided government has also denied President Obama any major acts that could rally Republicans and independents against him as health care reform did in the 2010 election. Obama's major legislative steps are now old news, the credibility of efforts to frame him as a threat to gun rights that thrived in 2010 hasn't materialized.
U.S. troops will essentially be out of the Iraq War that President Obama campaigned against and reduced U.S. involvement in dramatically. And, President Obama is already starting to heed bipartisan discontent over the U.S. commitment in Afghanistan and may be able to back down from it without paying a political price for doing so now that Obama bin Laden has been killed on President Obama's watch. The bipartisan debt deal, which included defense budget cuts that President Obama's own new Secretary of Defense Panetta has already started to publicly complain about loudly, also makes it hard for Republicans to campaign on the need for more defense spending.
Republicans are trying to make the limited U.S. military involvement in Libya look bad. But, to do so risks looking like they back Gaddafi over the revolutionaries and the Arab Spring movement generally, but they are likely to be in a stronger position by the time the election comes around than they are now, and are likely to seem less like an Islamist radical political movement than some pundits were worried that the Arab Spring movement might have been at first. In any case, President Obama has already stepped back from an already brief level of central U.S. involvement in that conflict which France and Britain have taken the lead in managing, and may be in a good position to reduce U.S. involvement further before Republicans can form a united and vocal front in opposition to it that becomes part of the national conversation. This operation is unlikely to produce many U.S. casualties, and it gives Obama some way to tell the American people that the vast sums we spend on the defense budget is producing some results somewhere, an argument that pro-defense budget Republican factions will be wary of undermining. Republicans are not natural anti-war activists.
Presidential re-election campaigns are fundamentally referrendums on the incumbent. A Republican Presidential nominee will bear the burden of proof with the American people to show that President Obama needs to be replaced and will have to do so without the enthusiasm gap of 2010. This will be a tall order for anyone that the Republican base, newly infused with Tea Party extremists can feel comfortable supporting.
The Republican primary, while providing free press to the Republican nominee that will help familiarize general election voters with Republican policy frames, is also almost invariably going to remind voters just how extreme some of those candidates are and generate a fear factor that could seep to independents and even moderate Republicans if the ultimate nominee is too extreme. No consensus has started to gel in the GOP nomination race, which still lacks a clear front runner. Since some Republicans in Congress will surely hitch their wagons to more right leaning nominees whose campaigns will crash, burn and discredit those candidacies, the Presidental race prove to be a drag on some Congressional campaigns. Strict GOP adherence to a hard right party line over the last two years will also give Republicans fodder in their campaigns in newly redrawn and unfamiliar Congressional districts.
All in all, 2012 looks like it will be a base v. base grim war of attrition that will be fought without enthusiasm or strong central themes by both parties.
Many components of new real estate investment took a hit in the housing bubble collapse that triggered the financial crisis. But, the dominant component of reduced construction investments has come from new single family homes. This is about 20% of the pre-bust peak right now and still well below late 20th century historical norms. New single family home investment plummeted to far below historical levels in the housing bubble collapse and remains where it fell today.
Other components of construction investments (single family home improvement, multifamily, commercial, etc.) have merely experienced a modest bump in the road and aren't far below pre-financial crisis levels today, although they too have experienced a slump.
The Employment Recession
Meanwhile, while the latest monthly job creation figures weren't horrible, in the bigger picture, the U.S. economy is in a pickle.
The number of jobs lost relative to the pre-recession peak is currently about the same point as it was at the deepest post-WWII recession where it stayed for only a couple of months in 1948. The situation has been that bad in the cuurrent employment recession for about two year and two months.
Jobs lost relative to pre-war jobs has been worse than the five months it spent there in 1957, and the situation has been that bad for about two yearsand four months. The employment recession has been worse than every employment recession since 1990 for two years and eight months already. These are the so called "post-modern" employment recessions which have tended to be more shallow, but longer lasting.
Four months from now, this will be the longest post-Great Depression employment recession in history, surpassing the four year long job slump that followed the tech bust in 2001.
It is almost certain that this employment recession will last much longer than four years. It is very unlikely that employment will recover to pre-financial crisis levels anytime in 2012 either given the trendlines of this employment recession.
Nothing that is going on in the domestic policy agenda or in the global economic situation suggests that the United States will be changing these trendlines dramatically any time soon. The U.S. government and almost all states (and most first world foreign countries) are taking Hoover style austerity measures instead of injecting demand into the economy with Keynsian/New Deal type stimulus efforts. The only remotely political plausible step that the U.S. could take which would provide a government spending boost that could pull the economy out of the jobs recession sooner would be to start some major new war (a solution that I heartily disfavor).
Given the growth in the labor force over three or four years that occurs naturally, the United States will be hard pressed to return to pre-financial crisis employement per population levels until late in 2013 at the earliest, and it could take until 2014 or later, or might never reach pre-financial crisis levels and produce a structural reduction in the amount of people employed in the U.S. relative to its population.
Current trendlines for this employment recession suggest a recover to pre-financial crisis levels sometime around the fall of 2013, about six year after it started.
2012 Election Implications
Naturally, if you are President Obama's campaign manager, this is not good news. Empirical studies of the impact of the economy on voter behavior in the election suggest that the relevant time frame starts around January of the year of the election, i.e. January 2012 in this election, about five months from now. Nobody thinks that the economy will have recovered to pre-financial crisis levels by then in employment, which is the most politically sensitive economic indicator. A double dip recession isn't out of the realm of possibility.
Republicans in the House of Representatives and the newly inked debt limit deal, however, severely restrain his ability to use government spending and employment to change the current trend, or enact major new economic legislation of any kind. They are playing to deny him any victories to campaign upon and their desire to deny him victories so will surely only heighten as the election grows closer.
Obama can try to blame Republicans for inaction, but only if he first makes a dramatic change of course and starts vigorously advocating for a course of action that Republicans refuse to take. Obama can hope that the Republicans nominate someone unelectable whose campaign will self-destruct and alienate the American people, but he has essentialy no say in that process. Republican brinksmanship in the debt limit deal wasn't well played in the court of public opinion. But, counting on Republicans to screw up isn't exactly a pro-active strategy that inspire much confidence.
The optimist narrative says that a Republican resurgence peaked too soon for Republicans to experience any further gains in 2012. The Tea Party gains in the off year 2010 election were a high water mark at which President Obama had already hit bottom and the Republican Party's enthusiasm levels had surged as much as they could. But, in 2012, voters can see from two years of Tea Party efforts to govern in Congress and in state governments where they made inroads, that their style of governing has little to recommend it. Divided government has also denied President Obama any major acts that could rally Republicans and independents against him as health care reform did in the 2010 election. Obama's major legislative steps are now old news, the credibility of efforts to frame him as a threat to gun rights that thrived in 2010 hasn't materialized.
U.S. troops will essentially be out of the Iraq War that President Obama campaigned against and reduced U.S. involvement in dramatically. And, President Obama is already starting to heed bipartisan discontent over the U.S. commitment in Afghanistan and may be able to back down from it without paying a political price for doing so now that Obama bin Laden has been killed on President Obama's watch. The bipartisan debt deal, which included defense budget cuts that President Obama's own new Secretary of Defense Panetta has already started to publicly complain about loudly, also makes it hard for Republicans to campaign on the need for more defense spending.
Republicans are trying to make the limited U.S. military involvement in Libya look bad. But, to do so risks looking like they back Gaddafi over the revolutionaries and the Arab Spring movement generally, but they are likely to be in a stronger position by the time the election comes around than they are now, and are likely to seem less like an Islamist radical political movement than some pundits were worried that the Arab Spring movement might have been at first. In any case, President Obama has already stepped back from an already brief level of central U.S. involvement in that conflict which France and Britain have taken the lead in managing, and may be in a good position to reduce U.S. involvement further before Republicans can form a united and vocal front in opposition to it that becomes part of the national conversation. This operation is unlikely to produce many U.S. casualties, and it gives Obama some way to tell the American people that the vast sums we spend on the defense budget is producing some results somewhere, an argument that pro-defense budget Republican factions will be wary of undermining. Republicans are not natural anti-war activists.
Presidential re-election campaigns are fundamentally referrendums on the incumbent. A Republican Presidential nominee will bear the burden of proof with the American people to show that President Obama needs to be replaced and will have to do so without the enthusiasm gap of 2010. This will be a tall order for anyone that the Republican base, newly infused with Tea Party extremists can feel comfortable supporting.
The Republican primary, while providing free press to the Republican nominee that will help familiarize general election voters with Republican policy frames, is also almost invariably going to remind voters just how extreme some of those candidates are and generate a fear factor that could seep to independents and even moderate Republicans if the ultimate nominee is too extreme. No consensus has started to gel in the GOP nomination race, which still lacks a clear front runner. Since some Republicans in Congress will surely hitch their wagons to more right leaning nominees whose campaigns will crash, burn and discredit those candidacies, the Presidental race prove to be a drag on some Congressional campaigns. Strict GOP adherence to a hard right party line over the last two years will also give Republicans fodder in their campaigns in newly redrawn and unfamiliar Congressional districts.
All in all, 2012 looks like it will be a base v. base grim war of attrition that will be fought without enthusiasm or strong central themes by both parties.
Per Capita Peak Oil Was In 1980?
Is what really matters to global oil prices peak oil? We may be on the brink of this now globally (it has been reached by many individual producers long ago), but it may be in the near to decade or two future depending upon who you talk to if we haven't reached it.
Or, is what really matters per capita peak oil? This arguably happened around 1980, and is only going to reverse if the global population starts growing more slowly than oil output, raising the bar for the oil industry to keep up.
I suspect that the number of people who live in industrialized economies or post-industrial economies is what really matters. Population growth in these economies is generically lower than global population growth rates, but it is growing because this is a function not just of natural increase, but also of economic development which is in two steps forward and one step back fashion gradually spreading to larger and larger parts of the economy. Since economic development is harder to predict than population growth, the trendline is harder to predict. Still, both population growth in the existing industrial and post-industrial world as a whole is probably positive for the foreseeable future and economic development is also likely to be more than zero, so oil prices are likely to have more demand pressure in the future as well as more supply pressure in the future. Hence, the measure of oil demand relative to supply that matters to global oil prices is likely to hit before peak oil does (if it hasn't hit already) and still sets a higher bar for oil produces to meet in terms of new production to keep oil prices moderated.
Equally important to this dynamic, of course, is that cheap oil may make economic development easier and cause the number of nations or subnational areas that are industrialized to grow more rapidly. But, peak oil driven price increases for oil may slow the industrialization phase of economic development. Thus, projecting future oil prices as a result of predictable supply and demand factors has self-interacting components.
The biggest wildcard is breakthough technology. New oil exploration and extraction technology could provide downward price bumps. But, the real game changing issue is whether technologies with a big impact on oil consumption take hold.
In practical terms this means mass conversion from gasoline and diesel powered vehicles to alternative fuel vehicles like electric cars, or dramatic increases in fuel efficiency from developments like plug-in hybrid vehicles and increased public transportation usage (particularly involving bus usage). Electric and plug-in hybrid vehicles of one sort or another are probably the only way that global oil demand can drop enough to counteract the long term price pressures that oil faces from an increasingly large industrialized world population and stagnating long term oil production as economically extractable supplies are exhausted. Transportation is the dominant source of oil demand in the industrialized world that otherwise gets its energy from other sources as environmental and price factors have made oil based fuels less attractive for uses where alternative energy sources are technologically viable. So these technologies have the dominant impact on oil demand per person in the industrialized world.
Or, is what really matters per capita peak oil? This arguably happened around 1980, and is only going to reverse if the global population starts growing more slowly than oil output, raising the bar for the oil industry to keep up.
I suspect that the number of people who live in industrialized economies or post-industrial economies is what really matters. Population growth in these economies is generically lower than global population growth rates, but it is growing because this is a function not just of natural increase, but also of economic development which is in two steps forward and one step back fashion gradually spreading to larger and larger parts of the economy. Since economic development is harder to predict than population growth, the trendline is harder to predict. Still, both population growth in the existing industrial and post-industrial world as a whole is probably positive for the foreseeable future and economic development is also likely to be more than zero, so oil prices are likely to have more demand pressure in the future as well as more supply pressure in the future. Hence, the measure of oil demand relative to supply that matters to global oil prices is likely to hit before peak oil does (if it hasn't hit already) and still sets a higher bar for oil produces to meet in terms of new production to keep oil prices moderated.
Equally important to this dynamic, of course, is that cheap oil may make economic development easier and cause the number of nations or subnational areas that are industrialized to grow more rapidly. But, peak oil driven price increases for oil may slow the industrialization phase of economic development. Thus, projecting future oil prices as a result of predictable supply and demand factors has self-interacting components.
The biggest wildcard is breakthough technology. New oil exploration and extraction technology could provide downward price bumps. But, the real game changing issue is whether technologies with a big impact on oil consumption take hold.
In practical terms this means mass conversion from gasoline and diesel powered vehicles to alternative fuel vehicles like electric cars, or dramatic increases in fuel efficiency from developments like plug-in hybrid vehicles and increased public transportation usage (particularly involving bus usage). Electric and plug-in hybrid vehicles of one sort or another are probably the only way that global oil demand can drop enough to counteract the long term price pressures that oil faces from an increasingly large industrialized world population and stagnating long term oil production as economically extractable supplies are exhausted. Transportation is the dominant source of oil demand in the industrialized world that otherwise gets its energy from other sources as environmental and price factors have made oil based fuels less attractive for uses where alternative energy sources are technologically viable. So these technologies have the dominant impact on oil demand per person in the industrialized world.
Virtue Doesn't Pay (In The Very Long Run)
Virtue is an old fashioned term that used to be applied to morality but that way of thinking now seems mostly confined to issues of personal health. If you virtuously eat right, excerise, don't drink too much, floss, and so on, you will live a long and health life. Right?
Well, maybe not. It turns out that people "who live to 95 or older are no more virtuous than the rest of us in terms of their diet, exercise routine or smoking and drinking habits."
Then again, it isn't as if the recommendation for diet and exercise come from nowhere. On average, these things have been demonstrated to help a lot in studies that have extremely large sample sizes and statistical significance, although the habits that have the highest work reward ratios (e.g. low dose asprin regimes and moderate alcohol consumption) are not all those one might naiively expect. Smoking, however, as expected, has a huge impact on life expectency, on average, as do little tips we would expect like not getting exposed to radioactivity above certain doses or to highly toxic chemicals like asbestos at work.
But, genes and luck, rather than diet and exercise, appear to be the key to making it from merely old to very old. And, there appears to be a pretty hard wall beyond which women just don't survive no matter what they do at about 114 to 115 years, and the absolute maximum lifespan of a man seems to be a bit shorter than it is for women.
There are a couple of competing theories as to why there is a maximum. One is that a small number of processes like telomere shorting and senile systemic amyloidosis eventually kill almost everybody that other mishaps didn't kill by that age.
If this is true, a small number of pills or magic bullet treatments might be able to significantly increase maximum human lifespan, although not necessarily average human lifespan. life expectency might increase only modestly (perhaps into the low 80s), but maximum life expectency might increase from 115 years to 130 years or more and a lot more people would live past 110.
An alternative narrative builds on the quip, "I'll bet they'll feel dumb when they get old and are dying of nothing." Maybe the causes of death that get most of us are front loaded, the very old are the people who escape those earlier onset body failures (mostly a few kinds of cancer and cardiovascular system collapses like heart attacks and strokes). Those people who don't die of those causes see more and more body systems that last just a little bit longer start to fail one after the other, until pretty sooner a person has multiple body systems that are all in trouble and one or the other of them catch up with them.
If this is true, comprehensive pre-failure life extension treatments of a large number of body systems would be necessary to meaningfully expand maximum life expectency, but a breakthrough on a small number of conditions might greatly expand average lifespan short of the maximum that is practically possible, which would be followed by multiple body system collapse later in life. Many more people might live to 90 instead of 70, but not many more people would live past 110 than do now.
Well, maybe not. It turns out that people "who live to 95 or older are no more virtuous than the rest of us in terms of their diet, exercise routine or smoking and drinking habits."
At age 70 the long lived had lifestyles not much different than others at that same time of life.
Overall, people with exceptional longevity did not have healthier habits than the comparison group in terms of BMI, smoking, physical activity, or diet. For example, 27 percent of the elderly women and an equal percentage of women in the general population attempted to eat a low-calorie diet. Among long-living men, 24 percent consumed alcohol daily, compared with 22 percent of the general population. And only 43 percent of male centenarians reported engaging in regular exercise of moderate intensity, compared with 57 percent of men in the comparison group.
Then again, it isn't as if the recommendation for diet and exercise come from nowhere. On average, these things have been demonstrated to help a lot in studies that have extremely large sample sizes and statistical significance, although the habits that have the highest work reward ratios (e.g. low dose asprin regimes and moderate alcohol consumption) are not all those one might naiively expect. Smoking, however, as expected, has a huge impact on life expectency, on average, as do little tips we would expect like not getting exposed to radioactivity above certain doses or to highly toxic chemicals like asbestos at work.
But, genes and luck, rather than diet and exercise, appear to be the key to making it from merely old to very old. And, there appears to be a pretty hard wall beyond which women just don't survive no matter what they do at about 114 to 115 years, and the absolute maximum lifespan of a man seems to be a bit shorter than it is for women.
There are a couple of competing theories as to why there is a maximum. One is that a small number of processes like telomere shorting and senile systemic amyloidosis eventually kill almost everybody that other mishaps didn't kill by that age.
If this is true, a small number of pills or magic bullet treatments might be able to significantly increase maximum human lifespan, although not necessarily average human lifespan. life expectency might increase only modestly (perhaps into the low 80s), but maximum life expectency might increase from 115 years to 130 years or more and a lot more people would live past 110.
An alternative narrative builds on the quip, "I'll bet they'll feel dumb when they get old and are dying of nothing." Maybe the causes of death that get most of us are front loaded, the very old are the people who escape those earlier onset body failures (mostly a few kinds of cancer and cardiovascular system collapses like heart attacks and strokes). Those people who don't die of those causes see more and more body systems that last just a little bit longer start to fail one after the other, until pretty sooner a person has multiple body systems that are all in trouble and one or the other of them catch up with them.
If this is true, comprehensive pre-failure life extension treatments of a large number of body systems would be necessary to meaningfully expand maximum life expectency, but a breakthrough on a small number of conditions might greatly expand average lifespan short of the maximum that is practically possible, which would be followed by multiple body system collapse later in life. Many more people might live to 90 instead of 70, but not many more people would live past 110 than do now.
The Tax Code's Merger Ratchet Drives Harmful Economic Decisions
Corporate tax law students, but very few other people, spend vast amounts of their time learning how to understand the Internal Revenue Code's corporate reorganization provisions. Being tax law, this task leaves you knee deep in detail and you can lose the forest for the trees. But, in the big picture, the corporate reorganization provisions of the tax code may do more to encourage our economy's tendency to create systemically risky too big to fail businesses that interfere with consumer friendly competition than our antitrust laws do to discourage them.
Simply put, there are lots of relatively easy, safe harbor ways under the tax code to merge a business with predictable, favorable tax consequences. There are "A" reorganizations (statutory mergers), there are "B" reorganizations (stock for stock purchases of companies), there are triangular "B" reorganizations (stock for stock acquisitions by a parent company that merge the acquired company directly into one of its subsidiaries), there are "C" reorganizations (stock for asset purchases of companies), there are triangular "C" reorganizations (stock for asset acquisitions by a parent company that merge the acquired company directly into one of its subsidiaries), and there are acquisitive "D" reorganizations (another flavor of stock for asset purchases of companies). (Reorganizations are usually classified by the lettered subsection of Internal Revenue Code Section 368 that authorize them). There are also some lesser known back door ways to merge companies, such as via a contribution to capital of a sister corporation by its shareholders.
In contrast, obtaining the same kind of favorable tax treatment for divisive reorganizations (also called "D" reorganizations), which can be structured as spin-offs, split-offs, or split-ups, are fraught with tax risk and uncertainty. The IRS and tax lawyers have to pay close attention to regulations that have detailed facts and circumstances driven analysis, and a great deal of audit and pre-approval efforts to making sure that tax code requirements regarding which assets can go in which surviving corporation are met.
In a divisive tax free reorganization, like a tax free merger, nobody leaves either kind of transaction with untaxed cash at closing (although for publicly held companies the difference between stock and cash may not be all that material since anyone who wants to can readily sell their stock for full fair market value at a moment's notice and tax free, hard money margin loans are widely available if the stock is not sold), in an effort to prevent potential leaks in the regime of double taxation of corporate profits that is criticized by big business executives and liberal academics alike under our tax code.
But, our tax code discourages publicly held companies from splitting by with the frequently deal busting risk of unexpected premature taxation of all of a successor company's assets. Divisive reorganizations will often prove unworkable from a tax perspective unless the groundwork for the move is laid years in advance and even then, the freedom of businesses to split themselves up into units that make the most economic sense can be materially limited by the need of lawyers and accountants involved in the deal to control tax risk.
As a result, mergers of publicly held corporations are relatively common place, while divisive reorganizations, like the one announced by Kraft today that breaks its business into an internationally oriented snack food business and a domestically oriented grocery store product business, or the recently announced deal to unwind the merger of Wendy's and Arbys restaurants, are the much more rare and notable exceptions.
This little known bias in the tax code, at the macroeconomic level, gives us too many conglomerates, in which it is hard for stock market price discipline to hold management accountable and which create systemic risk in our economy that flows from too big to fail entities (like AIG), while discouraging the financial markets from crafting firms in a way that disaggregates separate businesses from each other to the full extent that their underlying lack of economic interdependence permits.
The merger bias in the tax code also harms the economy by reducing transparency in financial disclosures. The SEC has exacting rules on financial reporting for publicly held companies, but one of the big shortcomings of those rules, that prevents the financial markets from efficiently allocating capital to profitable businesses, while denying further resources to businesses with poor profits, is that the financial accounting rules do little to require the divisional and line of business breakdowns of corporate profits, losses, assets and liabilities necessary to do the managerial accounting analysis necessary to determine if corporate restructurings make sense.
Instead, the combination of weak subunit reporting requirements from the SEC, corporate reorganization taxation biases against divisive reorganizations, and a double taxation of corporate profits regime that encourage businesses to retain earnings from equity to reinvest in their own company even when the average stock market investor would agree that the funds would be more profitably reinvested in some other segment of the economy, all conspire to increase systemic risk in our economy, reduce transparency in our financial markets, and inefficiently allocate financially investments to business divisions that are suboptimal uses of available capital.
Indeed, the bias towards reinvestment of corporate earnings, coupled with the bias against divisive reorganizations, creates an incentive that is strongest for the least well managed businesses to acquire better run businesses that throw off cash for the primary purpose of obscuring their weak performance and diverting the cash from the successful businesses towards reinvestment in poorly run businesses.
Our economy relies on the threat of hostile takeovers by businesses who can profit by identifying mismanaged companies, buying them, jettisoning the bad management or reversing bad decisions, and improving the bottom line as a result to hold corporate executives accountable and to give them an incentive to manage their companies effectively. But, conglomerates with many units purchases to provide internal access to retained earnings that lack meaningful public disclosure of unit performance that would be available if the divisions were separate publicly held firms, discourage this kind of market discipline, as do management friendly rulings of the Delaware courts that allow publicly held corporations to discourage market efforts to hold them accountable with golden parachutes that international financial experts have widely condemned as encouraging systemic risk by rewarding senior executive mismanagement, and other poison pills to discourage shareholder and financial market identification of and intervention to end mismanagement of big businesses.
In theory, antitrust laws should prevent anticompetitive mergers that harm the public interest, but in practice, they are a toothless tiger than looks impressive but has little practical impact. Most of the harm from a bias towards mergers and against holding separate functional business units accountable flows from the collective effect of little incremental decisions whose public impacts are not obvious. By the time that antitrust regulators can truly prove that the merger of the last few oligarchic firms in an industry will harm competition, the damage has already been done, and nothing gives antitrust authorities the power to limit the formation of conglomerates that don't have monopoly power in any one industry, despite the fact that this was one of the concerns that led to the passage of these laws in the first place.
Collectively, these incentives and corporate and antitrust law flaws have not only negative economic efficiency consequences, but negative consequences for the appropriate distribution of wealth and income in society and the allocation of political power. While economically unreasonably large firms may not necessarily have unreasonable market monopolies in given industries, their sheer size does unreasonably concentrate wealth in a self-dealing economic elite of senior managers and the top professional advisers in investment banks, law firms and accounting firms (for example), and similarly, unreasonably concentrates political power in these unaccountable elites, while providing a means by which businesses have an incentive to fight for the interests of this economic elite as a social class, rather than being disaggregated into the conflicting factions of smaller firms with more particular political interests that the founders envisioned in the Federalist papers that are more easily subjected to the diffuse interests of the majority. In a nutshell, conglomerates encourage logrolling and mutual backscratching not just by politicians themselves but by the monied interests that are developing political coalitions that work to the detriment of the public interest.
Is this a lot to lay at the foot of Internal Revenue Code 368, corporate double taxation, and regulations promulgated by the IRS and SEC? Surely it is. But, the obscure pieces of our regulatory framework conspire to drive the unreasonable concentration of economic power, wealth and income, while simultaneously making our economy less competitive. They may not be flashy, but their day after day, broad systemic impact on the way that decisions are made in the dominant sector of our economy have a cumulative impact that is easily underestimated.
Simply put, there are lots of relatively easy, safe harbor ways under the tax code to merge a business with predictable, favorable tax consequences. There are "A" reorganizations (statutory mergers), there are "B" reorganizations (stock for stock purchases of companies), there are triangular "B" reorganizations (stock for stock acquisitions by a parent company that merge the acquired company directly into one of its subsidiaries), there are "C" reorganizations (stock for asset purchases of companies), there are triangular "C" reorganizations (stock for asset acquisitions by a parent company that merge the acquired company directly into one of its subsidiaries), and there are acquisitive "D" reorganizations (another flavor of stock for asset purchases of companies). (Reorganizations are usually classified by the lettered subsection of Internal Revenue Code Section 368 that authorize them). There are also some lesser known back door ways to merge companies, such as via a contribution to capital of a sister corporation by its shareholders.
In contrast, obtaining the same kind of favorable tax treatment for divisive reorganizations (also called "D" reorganizations), which can be structured as spin-offs, split-offs, or split-ups, are fraught with tax risk and uncertainty. The IRS and tax lawyers have to pay close attention to regulations that have detailed facts and circumstances driven analysis, and a great deal of audit and pre-approval efforts to making sure that tax code requirements regarding which assets can go in which surviving corporation are met.
In a divisive tax free reorganization, like a tax free merger, nobody leaves either kind of transaction with untaxed cash at closing (although for publicly held companies the difference between stock and cash may not be all that material since anyone who wants to can readily sell their stock for full fair market value at a moment's notice and tax free, hard money margin loans are widely available if the stock is not sold), in an effort to prevent potential leaks in the regime of double taxation of corporate profits that is criticized by big business executives and liberal academics alike under our tax code.
But, our tax code discourages publicly held companies from splitting by with the frequently deal busting risk of unexpected premature taxation of all of a successor company's assets. Divisive reorganizations will often prove unworkable from a tax perspective unless the groundwork for the move is laid years in advance and even then, the freedom of businesses to split themselves up into units that make the most economic sense can be materially limited by the need of lawyers and accountants involved in the deal to control tax risk.
As a result, mergers of publicly held corporations are relatively common place, while divisive reorganizations, like the one announced by Kraft today that breaks its business into an internationally oriented snack food business and a domestically oriented grocery store product business, or the recently announced deal to unwind the merger of Wendy's and Arbys restaurants, are the much more rare and notable exceptions.
This little known bias in the tax code, at the macroeconomic level, gives us too many conglomerates, in which it is hard for stock market price discipline to hold management accountable and which create systemic risk in our economy that flows from too big to fail entities (like AIG), while discouraging the financial markets from crafting firms in a way that disaggregates separate businesses from each other to the full extent that their underlying lack of economic interdependence permits.
The merger bias in the tax code also harms the economy by reducing transparency in financial disclosures. The SEC has exacting rules on financial reporting for publicly held companies, but one of the big shortcomings of those rules, that prevents the financial markets from efficiently allocating capital to profitable businesses, while denying further resources to businesses with poor profits, is that the financial accounting rules do little to require the divisional and line of business breakdowns of corporate profits, losses, assets and liabilities necessary to do the managerial accounting analysis necessary to determine if corporate restructurings make sense.
Instead, the combination of weak subunit reporting requirements from the SEC, corporate reorganization taxation biases against divisive reorganizations, and a double taxation of corporate profits regime that encourage businesses to retain earnings from equity to reinvest in their own company even when the average stock market investor would agree that the funds would be more profitably reinvested in some other segment of the economy, all conspire to increase systemic risk in our economy, reduce transparency in our financial markets, and inefficiently allocate financially investments to business divisions that are suboptimal uses of available capital.
Indeed, the bias towards reinvestment of corporate earnings, coupled with the bias against divisive reorganizations, creates an incentive that is strongest for the least well managed businesses to acquire better run businesses that throw off cash for the primary purpose of obscuring their weak performance and diverting the cash from the successful businesses towards reinvestment in poorly run businesses.
Our economy relies on the threat of hostile takeovers by businesses who can profit by identifying mismanaged companies, buying them, jettisoning the bad management or reversing bad decisions, and improving the bottom line as a result to hold corporate executives accountable and to give them an incentive to manage their companies effectively. But, conglomerates with many units purchases to provide internal access to retained earnings that lack meaningful public disclosure of unit performance that would be available if the divisions were separate publicly held firms, discourage this kind of market discipline, as do management friendly rulings of the Delaware courts that allow publicly held corporations to discourage market efforts to hold them accountable with golden parachutes that international financial experts have widely condemned as encouraging systemic risk by rewarding senior executive mismanagement, and other poison pills to discourage shareholder and financial market identification of and intervention to end mismanagement of big businesses.
In theory, antitrust laws should prevent anticompetitive mergers that harm the public interest, but in practice, they are a toothless tiger than looks impressive but has little practical impact. Most of the harm from a bias towards mergers and against holding separate functional business units accountable flows from the collective effect of little incremental decisions whose public impacts are not obvious. By the time that antitrust regulators can truly prove that the merger of the last few oligarchic firms in an industry will harm competition, the damage has already been done, and nothing gives antitrust authorities the power to limit the formation of conglomerates that don't have monopoly power in any one industry, despite the fact that this was one of the concerns that led to the passage of these laws in the first place.
Collectively, these incentives and corporate and antitrust law flaws have not only negative economic efficiency consequences, but negative consequences for the appropriate distribution of wealth and income in society and the allocation of political power. While economically unreasonably large firms may not necessarily have unreasonable market monopolies in given industries, their sheer size does unreasonably concentrate wealth in a self-dealing economic elite of senior managers and the top professional advisers in investment banks, law firms and accounting firms (for example), and similarly, unreasonably concentrates political power in these unaccountable elites, while providing a means by which businesses have an incentive to fight for the interests of this economic elite as a social class, rather than being disaggregated into the conflicting factions of smaller firms with more particular political interests that the founders envisioned in the Federalist papers that are more easily subjected to the diffuse interests of the majority. In a nutshell, conglomerates encourage logrolling and mutual backscratching not just by politicians themselves but by the monied interests that are developing political coalitions that work to the detriment of the public interest.
Is this a lot to lay at the foot of Internal Revenue Code 368, corporate double taxation, and regulations promulgated by the IRS and SEC? Surely it is. But, the obscure pieces of our regulatory framework conspire to drive the unreasonable concentration of economic power, wealth and income, while simultaneously making our economy less competitive. They may not be flashy, but their day after day, broad systemic impact on the way that decisions are made in the dominant sector of our economy have a cumulative impact that is easily underestimated.
04 August 2011
A Silly Argument And A Smart One
Mark Thoma at The Fiscal Times argues that "balanced budget rules can cause rushed decisions if the statutory deadlines for achieving balance leave little time for careful deliberation" in the course of arguing that Congress is disfunctional. This is silly.
How many times in my lifetime have state or federal legislatures gotten fiscal matters done in advance in a carefully deliberated manner, rather than right at a deadline? I can't remember a year that Congress didn't have a continuing resolution or passed all of the dozen different appropriations bills separately before the deadline came and an omnibus bill had to be pushed through, even in years when we haven't had divided government.
Colorado's joint budget committee is better, but still highly deadline driven. And, one of the key's to Colorado's deadlines - a joint set of legislative rules made necessary by a short session, amateur legislature and strong legislative services division are almost impossibly to constitutionally impose on Congress.
But, Thoma also has a worthwhile point to make:
The two nations thing isn't entirely Mark Thoma's invented rhetoric. For example, Texas Governor Perry, who has campaigned for the GOP Presidential nomination in Colorado recently, has publicly said positive things about the possibility of Texas leaving the United States of American again. The partisan divide between U.S. regions is as strong as it has been in recent memory and social class divides are also more intense in the U.S. than they have been in a very long time.
It isn't just the politicans. I frequently finding myself asking what the heck Republicans are thinking, because when I ask myself what someone who hates American would do and then compare it to what they are trying to accomplish, it very frequently seems to be the same thing. My civility instincts tell me that this is a horribly bad attitude that I should try to fight, but it is what comes to the surface emotionally whenever their latest idea comes up. Whatever agenda they are advancing, it is so profoundly distant from my reality that it makes no sense at all to me, much of the time, or violates deeply held values about the political process and policy substance of what makes our country special and uniquely American. Sometimes I wonder if we wouldn't be better off if Governor Perry got his wish and rid us of the influence that he and his have on our politics.
Then again, Thoma makes one more argument that is neither here nor there. He says that the press doesn't do a good enough job of holding politicians accountable. There is merit to that. Politicans are held accountable for very little of their destructive bad behavior and mischief.
But, I'm not convinced that the press is the most guilty party. It is hard to educate the large share of the voting public that isn't interested in paying attention, and the fact that the nation feels that it can get away with indifference is mostly a testament to a fairly healthy political culture in the formative period of the average voter, rather than being a purely negative indicator. Many of us managed to earn the privilege of not paying much attention because politics has tended to be incrementalist for the last few decades in the United States. Only when elected leaders really screw up in a way that forces a radical change that is contrary to the agreed rules of the political game, as we saw this year in Wisconsin and Minnesota, does the sleeping giant that is the American public wake up and start paying attention. We can be outraged about the process because we have been taught to expect better.
If the U.S. had defaulted on its debt and there had been dire consequences, the American public probably would have woken up and been determined to do something about it in 2012. But, a deal to complex and arcane and unlikely to be adhered to in the long term to make it interesting to the general public was reached, constitutional crisis was avoided, and the public will return to its slumber for a while.
I don't like the way that we are making our sausage and would like to reform it. The Republican balanced budget amendment proposal is a DOA way of addressing the problem. But, there is room for process reform and better ways of holding politicians accountable as well.
How many times in my lifetime have state or federal legislatures gotten fiscal matters done in advance in a carefully deliberated manner, rather than right at a deadline? I can't remember a year that Congress didn't have a continuing resolution or passed all of the dozen different appropriations bills separately before the deadline came and an omnibus bill had to be pushed through, even in years when we haven't had divided government.
Colorado's joint budget committee is better, but still highly deadline driven. And, one of the key's to Colorado's deadlines - a joint set of legislative rules made necessary by a short session, amateur legislature and strong legislative services division are almost impossibly to constitutionally impose on Congress.
But, Thoma also has a worthwhile point to make:
[A]nother explanation that is often put forth to explain the change in congressional behavior is that legislators today are less patriotic than they once were. That is, nation used to come before party, but those days are long gone.
But patriotism is not the problem. What has changed is that we have become, in many respects, two separate nations living within a common border. Patriotism is as strong as ever within each nation, but there is very little recognition that the needs of the other group are legitimate or have any standing at all in policy decisions.
Thus, we are no longer indivisible. Justice for my group rather than justice for all dominates the political landscape and pollutes the policy environment. Until that is fixed–if it can be fixed–no amount of rules, triggers, ticking bombs, or other devices will set it right again.
The two nations thing isn't entirely Mark Thoma's invented rhetoric. For example, Texas Governor Perry, who has campaigned for the GOP Presidential nomination in Colorado recently, has publicly said positive things about the possibility of Texas leaving the United States of American again. The partisan divide between U.S. regions is as strong as it has been in recent memory and social class divides are also more intense in the U.S. than they have been in a very long time.
It isn't just the politicans. I frequently finding myself asking what the heck Republicans are thinking, because when I ask myself what someone who hates American would do and then compare it to what they are trying to accomplish, it very frequently seems to be the same thing. My civility instincts tell me that this is a horribly bad attitude that I should try to fight, but it is what comes to the surface emotionally whenever their latest idea comes up. Whatever agenda they are advancing, it is so profoundly distant from my reality that it makes no sense at all to me, much of the time, or violates deeply held values about the political process and policy substance of what makes our country special and uniquely American. Sometimes I wonder if we wouldn't be better off if Governor Perry got his wish and rid us of the influence that he and his have on our politics.
Then again, Thoma makes one more argument that is neither here nor there. He says that the press doesn't do a good enough job of holding politicians accountable. There is merit to that. Politicans are held accountable for very little of their destructive bad behavior and mischief.
But, I'm not convinced that the press is the most guilty party. It is hard to educate the large share of the voting public that isn't interested in paying attention, and the fact that the nation feels that it can get away with indifference is mostly a testament to a fairly healthy political culture in the formative period of the average voter, rather than being a purely negative indicator. Many of us managed to earn the privilege of not paying much attention because politics has tended to be incrementalist for the last few decades in the United States. Only when elected leaders really screw up in a way that forces a radical change that is contrary to the agreed rules of the political game, as we saw this year in Wisconsin and Minnesota, does the sleeping giant that is the American public wake up and start paying attention. We can be outraged about the process because we have been taught to expect better.
If the U.S. had defaulted on its debt and there had been dire consequences, the American public probably would have woken up and been determined to do something about it in 2012. But, a deal to complex and arcane and unlikely to be adhered to in the long term to make it interesting to the general public was reached, constitutional crisis was avoided, and the public will return to its slumber for a while.
I don't like the way that we are making our sausage and would like to reform it. The Republican balanced budget amendment proposal is a DOA way of addressing the problem. But, there is room for process reform and better ways of holding politicians accountable as well.
U.S. Health Insurance Reimbursement Paperwork Expensive
U.S. physicians spend nearly $61,000 more than their Canadian counterparts each year on administrative expenses related to health insurance. . . . The study, published in the August issue of the journal Health Affairs, found that per-physician costs in the U.S. averaged $82,975 annually, while Ontario-based physicians averaged $22,205 -- primarily because Canada's single-payer health care system is simpler.
Canadian physicians follow a single set of rules, but U.S. doctors grapple with different sets of regulations, procedures and forms mandated by each health insurance plan or payer. The bureaucratic burden falls heavily on U.S. nurses and medical practice staff, who spend 20.6 hours per physician per week on administrative duties; their Canadian counterparts spend only 2.5 hours. . . . "It's the nurse time and the clerical time, rather than physician time, that's different." . . . The result is an additional $27 billion spent every year in the U.S. when compared to the costs incurred by physicians in Canada.
From here.
The justification for the heavy bureaucratic burden and rules in the U.S. is "to keep health care costs down" but, there is little evidence tht they actually work as intended to do so (the U.S. has the highest health care costs in the world for less than the best care in the world and a bad cost trendline compared to the rest of the world that is long standing).
There are parts of the system, like U.S. government run single payer for the elderly health care system called Medicare and the Veteran's Administration Hospital systems (also run by the U.S. government), that are quite efficient in terms of administrative costs and cost control and outcomes relative to the private health insurance managed part of the market. But, the nation chose not to do that in the most recent round of health care reform out of an ideological commitment to the private sector provision of this insurance function, contrary to the empirical evidence that government insurance is more efficient and better at cost control and produces better outcomes than a private insurance company managed system in the area of health care.
It is also important to mention what the Canadian system is and is not. Health care providers in Canada, by and large, are not government employees (unlike the British health care system). They have their own businesses just like American health care providers do. But, Canadian private sector health care providers fill out insurance forms for one health insurance company run as a government agency, rather than many private sector health insurance companies.
Canadians have decided that it is important to let the private sector handle the very personal business of deciding who will provide you with health care but that the far less personal business (which most Americans have no choice in anyway) of deciding who will process the health insurance claims to decide if they will be paid is not very important ideologically or practically, given the huge cost savings this approach provides and the better cost controls that it facilitates.
Charging People To Put Money In Savings Accounts
Bank of New York Mellon Corp. is charging customers for the privilege of allowing them to deposit large sums of their money at the Bank. Charging people to deposit money so that you can charge somebody else to borrow that money from you, and still having people rushing to give you their funds anyway is a sweet deal if you can pull it off.
Panic over sovereign debt security abroad, and low interest rates of Treasuries were cited in the decision by the Bank. Also, the stock market is having one of its periodic freak outs, and it isn't even autumn yet.
Inflation adjusted incomes fell 15.2% in 2009 to a twelve year low.
The federal funds rate will be zero percent until mid-2013 or so, the European Union says the sovereign debt situation is worst that the public realizes, and China and Russia which finance lots of the U.S. national debt have expressed great dissatisfaction with the near brush with default that the U.S. experienced over the last week.
FWIW, I know financial planners who can do better than that with your personal or institutional funds.
Panic over sovereign debt security abroad, and low interest rates of Treasuries were cited in the decision by the Bank. Also, the stock market is having one of its periodic freak outs, and it isn't even autumn yet.
Inflation adjusted incomes fell 15.2% in 2009 to a twelve year low.
The federal funds rate will be zero percent until mid-2013 or so, the European Union says the sovereign debt situation is worst that the public realizes, and China and Russia which finance lots of the U.S. national debt have expressed great dissatisfaction with the near brush with default that the U.S. experienced over the last week.
FWIW, I know financial planners who can do better than that with your personal or institutional funds.
The More Things Change . . .
Once upon a time, before I was born, the regressive wing of American politics was the province of Southern Democrats called Dixiecrats. Now, realignment is complete and the radical right Tea Party delegation in the U.S. Congress, a faction in the Republican, comes about two-thirds from the American South that accounts for about a quarter of the U.S. population (and the Tea Party is not getting any significant share of the black vote despite the fact that the South has a larger black population than any other region in the U.S. by a large margin), while only one hails from the Northeast. It is dominated by the same demographics that used to elect Dixiecrats. They are just as pernicious as they were before they rebranded and changed parties.
Overall new U.S. HIV cases stable
The most recent report from U.S. government health officials reports that 50,000 new HIV cases were diagnosed in the most recent year, stable compared to four years ago overall. About two-thirds were men who have had sex with men, about 9% were IV drug users, the rest were classified heterosexual cases, something fairly typical of prior years.
Cases were up for adult men who have had sex with men and are under thirty years old, including an increase of 48% for black men in that category compared to just four years ago, and since the overall numbers were down, presumably down in many other demographics compared to four years ago.
The media has reported the 48% increase for black men who have had sex with men and are under thirty years old as "gay men." But, I suspect that a significant share of those cases reflects men who were raped by other men, probably mostly in prison. Why? The numbers are much larger relative to the size of the population involved than in other demographics and following completely different trendlines. There is no particularly good reason to think that the black men are that much more likely to be gay than other men. While it wouldn't be surprising if the unsafe practices rate for gay black men engaged in consentual sex outside prison was higher in black men than for other men, the differences in rates of HIV infection and other serious STDs is so much higher in young black men than in demographics with much lower incarceration rates. There may be racial divides in the 2010s gay social scene, just as there are in other parts of American life, but the numerical gap is what you would expect if Jim Crow were still in full force in America; while my perhaps naiive take is that young gay men are no more segregated by race, and perhaps a bit less so, than other American demographics. Also, the numbers seem to suggest that significantly more black women receive HIV from black men who have had sex with men than in other demographics, which would suggest, at a minimum a larger share of men who have had sex with men who also have sex with women in this demographic than other demographics. If would take only something on the order of 0.5%-2% of the black male prison population to have new HIV infections each year to account for the discrepency, which would not be out of line with these cases making up a minority share of all estimated for prison rapes of black men each year. An indepth analysis post from 2005 on the subject at this blog is here and there have been several posts in between.
However, my conclusions are based only on numbers and I haven't seen an in depth non-statistical analysis, despite its importance from a public health perspective. For example, focusing public information campaigns on bars frequented by young middle class African American gay men is not going to solve the problem if most of the new cases are coming of young African American men who have had sex with men are coming from prison rapes (or, for that matter consentual sex in a prison environment by gay men who don't have access to basics like condoms and have a limited choice of partners).
The good news, however, is that people who are infected with HIV are living about twice as long and at greater levels of health as they did when the outbreak started, roughly twenty years instead of ten, in round numbers, mostly due to new drugs, but perhaps to some small extent also because most new infectious diseases grow less virulent in subsequent epidemic waves because the most virulent strains tend to die out with the people who are infected while having caused fewer new cases in the meantime.
Cases were up for adult men who have had sex with men and are under thirty years old, including an increase of 48% for black men in that category compared to just four years ago, and since the overall numbers were down, presumably down in many other demographics compared to four years ago.
The media has reported the 48% increase for black men who have had sex with men and are under thirty years old as "gay men." But, I suspect that a significant share of those cases reflects men who were raped by other men, probably mostly in prison. Why? The numbers are much larger relative to the size of the population involved than in other demographics and following completely different trendlines. There is no particularly good reason to think that the black men are that much more likely to be gay than other men. While it wouldn't be surprising if the unsafe practices rate for gay black men engaged in consentual sex outside prison was higher in black men than for other men, the differences in rates of HIV infection and other serious STDs is so much higher in young black men than in demographics with much lower incarceration rates. There may be racial divides in the 2010s gay social scene, just as there are in other parts of American life, but the numerical gap is what you would expect if Jim Crow were still in full force in America; while my perhaps naiive take is that young gay men are no more segregated by race, and perhaps a bit less so, than other American demographics. Also, the numbers seem to suggest that significantly more black women receive HIV from black men who have had sex with men than in other demographics, which would suggest, at a minimum a larger share of men who have had sex with men who also have sex with women in this demographic than other demographics. If would take only something on the order of 0.5%-2% of the black male prison population to have new HIV infections each year to account for the discrepency, which would not be out of line with these cases making up a minority share of all estimated for prison rapes of black men each year. An indepth analysis post from 2005 on the subject at this blog is here and there have been several posts in between.
However, my conclusions are based only on numbers and I haven't seen an in depth non-statistical analysis, despite its importance from a public health perspective. For example, focusing public information campaigns on bars frequented by young middle class African American gay men is not going to solve the problem if most of the new cases are coming of young African American men who have had sex with men are coming from prison rapes (or, for that matter consentual sex in a prison environment by gay men who don't have access to basics like condoms and have a limited choice of partners).
The good news, however, is that people who are infected with HIV are living about twice as long and at greater levels of health as they did when the outbreak started, roughly twenty years instead of ten, in round numbers, mostly due to new drugs, but perhaps to some small extent also because most new infectious diseases grow less virulent in subsequent epidemic waves because the most virulent strains tend to die out with the people who are infected while having caused fewer new cases in the meantime.
01 August 2011
The Trouble With Felony-Murder
Law professor Guyora Binder's recent law review article on felony-murder is guilty of running down a straw man argument. Professor Binder argues that the offense of felony-murder, which is the law in 45 states and allows for a murder conviction by someone who did not intend to kill but was involved in felony that resulted in a death is legitimate in the vast majority of cases since the death does amount to, at least, negligent homicide in an aggravating circumstance. The problematic cases, Binder argues, are those in which the causation requirement is too weak because the death was not foreseeable.
Binder refrains from seriously addressing the capital punishment implications of a mere participant in a felony who had no direct role in causing the death, or the grading of the murder involved, which is a great shame as it is the most central issue in the matter. A mere participant in a felony that gives rise to death is eligible for the death penalty, and is also eligible for life imprisonment without parole. Indeed, felony-murder was invented historically precisely to separate a subclass of murders for which the death penalty would be available from a subclass of murders for which it would not be available, such as impulsive murders not involving pre-meditation or another felony.
While few criminal justice scholars would seriously doubt that it is not unreasonable for involvement in a dangerous felony that causes a death (at least foreseeably) to be punished more severely than involvement in a dangerous felony that does not cause a death in some manner, most would also agree that, as a class, the individuals who are mere participants in group felonies where someone else causes a death, include the largest share of individuals who are the least culpable murder convicts who are eligible for the death penalty or life without parole sentences in current law. Moreover, since no sentence less than life without possibility of parole is often allowed upon a conviction for this offense and the death penalty is often a permitted sanction for it, these are cases where the lack of a potential for judicial mercy in sentencing is highly troubling. For example, it is no coicidence that a large share of all juveniles sentenced to life in prison without parole in Colorado were convicted of being a participant but not actual killer in a felony-murder case where judicial discretion to classify the case as a juvenile one was also absent.
While lack of foreseeability of a death is a problem in some cases, at least as important is the grading of felony-murder as a form of capital murder rather than as mere ordinary non-capital murder for which considerable sentencing discretion to fit the facts and circumstances of the case and the defendant's involvement in its are involved.
Binder's apology for felony-murder statutes make sense in a world where there is a foreseeability requirement and felony-murder is the same grade offense as ordinary murder and conspiracy to commit capital murder, but below the grade of capital murder. But, because of the historical origins of this crime as a grading device that inadvertantly expanded as well as narrowed the scope of the death penalty, this is rarely the case, and it is a pity that Binder's analysis relegates the key issue of death penalty eligibility to a mere footnote and doesn't squarely address life without possibility of parole sentencing without judicial discretion at all.
Binder also fails to address in any meaningful way the extremely restrictive standards for renunciation of felony-murder culpability in most jurisdictions that makes it almost impossible for an uncounseled defendant acting in the heat of the moment to qualify even when genuine renunciation and efforts to undo the crime set in motion are present.
Binder refrains from seriously addressing the capital punishment implications of a mere participant in a felony who had no direct role in causing the death, or the grading of the murder involved, which is a great shame as it is the most central issue in the matter. A mere participant in a felony that gives rise to death is eligible for the death penalty, and is also eligible for life imprisonment without parole. Indeed, felony-murder was invented historically precisely to separate a subclass of murders for which the death penalty would be available from a subclass of murders for which it would not be available, such as impulsive murders not involving pre-meditation or another felony.
While few criminal justice scholars would seriously doubt that it is not unreasonable for involvement in a dangerous felony that causes a death (at least foreseeably) to be punished more severely than involvement in a dangerous felony that does not cause a death in some manner, most would also agree that, as a class, the individuals who are mere participants in group felonies where someone else causes a death, include the largest share of individuals who are the least culpable murder convicts who are eligible for the death penalty or life without parole sentences in current law. Moreover, since no sentence less than life without possibility of parole is often allowed upon a conviction for this offense and the death penalty is often a permitted sanction for it, these are cases where the lack of a potential for judicial mercy in sentencing is highly troubling. For example, it is no coicidence that a large share of all juveniles sentenced to life in prison without parole in Colorado were convicted of being a participant but not actual killer in a felony-murder case where judicial discretion to classify the case as a juvenile one was also absent.
While lack of foreseeability of a death is a problem in some cases, at least as important is the grading of felony-murder as a form of capital murder rather than as mere ordinary non-capital murder for which considerable sentencing discretion to fit the facts and circumstances of the case and the defendant's involvement in its are involved.
Binder's apology for felony-murder statutes make sense in a world where there is a foreseeability requirement and felony-murder is the same grade offense as ordinary murder and conspiracy to commit capital murder, but below the grade of capital murder. But, because of the historical origins of this crime as a grading device that inadvertantly expanded as well as narrowed the scope of the death penalty, this is rarely the case, and it is a pity that Binder's analysis relegates the key issue of death penalty eligibility to a mere footnote and doesn't squarely address life without possibility of parole sentencing without judicial discretion at all.
Binder also fails to address in any meaningful way the extremely restrictive standards for renunciation of felony-murder culpability in most jurisdictions that makes it almost impossible for an uncounseled defendant acting in the heat of the moment to qualify even when genuine renunciation and efforts to undo the crime set in motion are present.
Turkey's Invisible Democratic Revolution
Since Attaturk, the Turkish military has served a the defender of a secular constitution in a country that was dominantly Muslim at the expense of majoritarian democracy. But, it appears that this role has now ended for good as the senior military leadership has been purged by the combination of dozens of arrests of senior military officials by civilian law enforcement authorities and the mass resignation of the remaining top military officers. It isn't entirely clear from half the world away to what extent the charges that have led to the arrests of military officers are valid and to what extent they are cover for a political purge.
It also isn't clear what made it possible for the arrests to be successfully carried out this time when in the past civilian authorities have seemed unable to carry out these kinds of arrests, although the generalized influences of the Arab Spring in the region could be a factor.
Turkey's days of military supremacy over civilian rule has ended, bringing it out of the classic newly emerging democracy phase of development. But, it isn't yet clear if the civilians who now have unquestioned supremacy will be able to avoid the temptations to engage in unconstitutional conduct or establish a religion in governmental affairs, which could be worse.
The example is a worthwhile one for American political scientists to examine because a similar strategy of civilian arrests of military leaders is essentially the only recourse in the U.S. Constitution should there ever be a threat of a coup in the United States and a coup is by far the most plausible end of regime scenario for the American system of government.
It also isn't clear what made it possible for the arrests to be successfully carried out this time when in the past civilian authorities have seemed unable to carry out these kinds of arrests, although the generalized influences of the Arab Spring in the region could be a factor.
Turkey's days of military supremacy over civilian rule has ended, bringing it out of the classic newly emerging democracy phase of development. But, it isn't yet clear if the civilians who now have unquestioned supremacy will be able to avoid the temptations to engage in unconstitutional conduct or establish a religion in governmental affairs, which could be worse.
The example is a worthwhile one for American political scientists to examine because a similar strategy of civilian arrests of military leaders is essentially the only recourse in the U.S. Constitution should there ever be a threat of a coup in the United States and a coup is by far the most plausible end of regime scenario for the American system of government.
Pop Culture Esoterica
Monopoly has an official rule that almost nobody actually uses (I knew that and have actually used said rule but can't say I that prefer doing so) (h/t to Enik Rising).
The Star Wars saga owes less of its literary inspiration to mythic universals of Joseph Campbell, and more to its pulp fiction antecedents in the genre, particular the Lensman series by E.E. "Doc" Smith which is now out of copyright (the first episode of the series, at least, is available for a legal free download), than is commonly recognized (h/t to Razib at Gene Expression).
FWIW, Smith's prose is just about as dreadful as the dialog in Star Wars, if not worse, as it has the corny smaltz of self-mockery popular in the 1930s and 1940s when it was written that Star Wars, which generally takes itself much more seriously, lacks.
The Star Wars saga owes less of its literary inspiration to mythic universals of Joseph Campbell, and more to its pulp fiction antecedents in the genre, particular the Lensman series by E.E. "Doc" Smith which is now out of copyright (the first episode of the series, at least, is available for a legal free download), than is commonly recognized (h/t to Razib at Gene Expression).
FWIW, Smith's prose is just about as dreadful as the dialog in Star Wars, if not worse, as it has the corny smaltz of self-mockery popular in the 1930s and 1940s when it was written that Star Wars, which generally takes itself much more seriously, lacks.
Evangelical Christianity's Ugly Side Is Inseparable From Its Virtues
Nicholas Kristoff, in a column this past Saturday, summed up what liberals don't like about Evangelical Christianity, in the course of arguing that the negative stereotype isn't universal since there are nice evangelical Christians out there (like the late Reverend John Stott of Britain, and liberal evangelicals like Jim Wallis of Sojourners fame and Richard Cizik) who don't make headlines the way that the hellfire and brimstone, or prosperity gospel TV evangelists do.
This may be true, but his spot on summary of liberal distaste of the Evangelical Christian movement deserves restating for future reference:
While I am more than willing to acknowledge that there are social gospel preaching intellectuals like Stott, a British theological writer, who are simultaneously humanistic and Christian, it is inaccurate to call him an "evangelical Christian" in the sense of the term that describes the movement within American Christianity that took off in the American South during the Second Great Awakening, with its "distinctives" having only remote and cryptic connections to earlier movements in Christianity that has spread and mutated from there, as opposed to its generic meaning of someone who is a Christian and actively engages in the business of trying to convert others to the faith.
There is a case to be made that this narrow sense of Evangelical Christianity makes positive contributions to society and doesn't deserve the wholehearted distaste which Kristoff explains that the movement has worked hard to earn. But, attacking it from the point of figures like Stott, Wallis and Cizik, who are either not a part of that movement at all, even if religious people in that movement do read what they have to say at times, or who are on its fringes trying to reform it from its flaws from a position of underdog movement insurgents, is not a credible way to redeem this movement.
If one is to redeem (or at least understand the moral basis of) narrow sense Evangelical Christianity, one needs to look at the positive or at least culturally important contributions of core followers of the very same people, at that core of that movement, who generate such liberal outrage, not the critics at its fringe.
Evangelical Christianity does have upsides: their willingness to engage in prison ministries, their willingness to acknowledge that their communities are broken and need fixing, their willingness to include the poor and working class as a part of their community rather than objectifying them as outsiders, their commitment to trying to reform people, their ability to unify a Southern ethnic identity that doesn't show up on census forms in the face of a dominant Northern national elite culture, their ability to devote private sector charitable effort to addressing the problems of the Third World, and their commitment to the possibility of a hopeful future even in moments when individuals think that their lives have reached dead ends.
This movement is fundamentally reactionary, myopic, anti-intellectual and immoral. For this movement these are features, not flaws. This movement is also inherently and centrally willing to include and support those who are down on their luck if those people submit to their broader cultural agenda. The two sides of the movement's agenda are mutually reinforcing and inseparable parts of what it means to be an Evangelical Christian in the narrow sense of that term.
Their stubborn, fact-blind righteousness is part and parcel of their unwavering attitude of hopefulness and acceptance of the inevitability of divine providence. Their anti-intellectual orientation is part of what puts this religious movement in a comfort zone for those who are themselves ill educated. One can't unify a cohort of people who as a matter of core ethnic identity refuse to acknowledge the legitimacy of the North's victory in the Civil War if you are aren't reactionary.
Evangelical Christianity offers a port in the storm for losers of many shades and stripes that more mainstream Christianity does not. Mainstream Christianity is more open to letting a depressing (for the core constituency of Evangelical Christianity) reality in, mainstream Christianity accepts the authority of intellectuals who necessarily have profound cultural distance from working class flocks as their leaders, and mainstream Christianity is more insistent upon the importance of not sinning in the first place relativite to the importance of never ending forgiveness without regard to culpability than the average self-identified Evangelical Christian knows how to manage. In a world of ugly people, a taboo against mirrors can seem attractive; Evangelical Christianity offers such a world.
If liberals want to make inroads into the people who make up the core of the Evangelical Christian movement, which is closely identified with, although not 100% identical to, the core of the American political conservative movement exemplified in the Tea Party movement and core of the Republican party, it will not suffice to embrace and encourage people who self-identify as Evangelical Christians but operate from outside or at the fringes of that movement.
Instead, liberals have to offer an alternative that can provide an authentic core identity and belief system that works for people who are uneducated and regularly down on their luck who need abundant forgiveness for their psychological well being because they can't figure out how to keep from sinning on a regular basis. They need an alternative that can maintain an unrelenting campaign of calling attention to the failures in their community that need fixing without raising the hackles that outside criticism does, who keep trying even though there is no source of relief in sight. They need to provide people with a worldview that can give them hope in the face of a lack of possibility. They need to offer some filter that can allow these people to make sense of a world that confuses them because they have their feet planted firmly in the past. These people have deep spiritual needs and neither mainstream Christianity nor secular philosophy are doing a good job of serving their needs.
If liberals can solve that riddle to meet those needs, or can change the world in a way so that a critical mass of people no longer need these things, Evangelical Christianity will wither away. Until then, liberals are fighting fire with paper. Every now and then it can smoother a hot spot that is getting out of control, but their own efforts to fight it also fuel the fire.
I suspect that if an alternative is found, it is as likely as not to be something other than mainstream Christianity. For example, Americanized Islam came close to leaping into that role under the leadership of Malcolm X for African-Americans. Mormons, while in many respects a part of the Evangelical Christian movement, similarly offer a different enough community and theological model to offer a genuine alternative to the traditional Evangelical Christian model, even though they do not completely break from that mold. It would likewise be unsurprising to seem some sort of innovation along these lines emerge from the non-denominational megachurch movement. Or, it could be something entirely different. But, until an alternative comes along, Evangelical Christianity, as pernicious as it is, will have staying power because it addresses needs that other movements do not for tens of millions of Americans.
This may be true, but his spot on summary of liberal distaste of the Evangelical Christian movement deserves restating for future reference:
In these polarized times, few words conjure as much distaste in liberal circles as “evangelical Christian.”
That’s partly because evangelicals came to be associated over the last 25 years with blowhard scolds. When the Rev. Jerry Falwell and Pat Robertson discussed on television whether the 9/11 attacks were God’s punishment on feminists, gays and secularists, God should have sued them for defamation.
Earlier, Mr. Falwell opined that AIDS was “God’s judgment on promiscuity.” That kind of religious smugness allowed the AIDS virus to spread and constituted a greater immorality than anything that occurred in gay bathhouses.
Partly because of such self-righteousness, the entire evangelical movement often has been pilloried among progressives as reactionary, myopic, anti-intellectual and, if anything, immoral. . . .
Centuries ago, serious religious study was extraordinarily demanding and rigorous; in contrast, anyone could declare himself a scientist and go in the business of, say, alchemy. These days, it’s the reverse. A Ph.D. in chemistry is a rigorous degree, while a preacher can explain the Bible on television without mastering Hebrew or Greek — or even showing interest in the nuances of the original texts.
Those self-appointed evangelical leaders come across as hypocrites, monetizing Jesus rather than emulating him. Some seem homophobic, and many who claim to be “pro-life” seem little concerned with human life post-uterus. Those are the preachers who won headlines and disdain.
While I am more than willing to acknowledge that there are social gospel preaching intellectuals like Stott, a British theological writer, who are simultaneously humanistic and Christian, it is inaccurate to call him an "evangelical Christian" in the sense of the term that describes the movement within American Christianity that took off in the American South during the Second Great Awakening, with its "distinctives" having only remote and cryptic connections to earlier movements in Christianity that has spread and mutated from there, as opposed to its generic meaning of someone who is a Christian and actively engages in the business of trying to convert others to the faith.
There is a case to be made that this narrow sense of Evangelical Christianity makes positive contributions to society and doesn't deserve the wholehearted distaste which Kristoff explains that the movement has worked hard to earn. But, attacking it from the point of figures like Stott, Wallis and Cizik, who are either not a part of that movement at all, even if religious people in that movement do read what they have to say at times, or who are on its fringes trying to reform it from its flaws from a position of underdog movement insurgents, is not a credible way to redeem this movement.
If one is to redeem (or at least understand the moral basis of) narrow sense Evangelical Christianity, one needs to look at the positive or at least culturally important contributions of core followers of the very same people, at that core of that movement, who generate such liberal outrage, not the critics at its fringe.
Evangelical Christianity does have upsides: their willingness to engage in prison ministries, their willingness to acknowledge that their communities are broken and need fixing, their willingness to include the poor and working class as a part of their community rather than objectifying them as outsiders, their commitment to trying to reform people, their ability to unify a Southern ethnic identity that doesn't show up on census forms in the face of a dominant Northern national elite culture, their ability to devote private sector charitable effort to addressing the problems of the Third World, and their commitment to the possibility of a hopeful future even in moments when individuals think that their lives have reached dead ends.
This movement is fundamentally reactionary, myopic, anti-intellectual and immoral. For this movement these are features, not flaws. This movement is also inherently and centrally willing to include and support those who are down on their luck if those people submit to their broader cultural agenda. The two sides of the movement's agenda are mutually reinforcing and inseparable parts of what it means to be an Evangelical Christian in the narrow sense of that term.
Their stubborn, fact-blind righteousness is part and parcel of their unwavering attitude of hopefulness and acceptance of the inevitability of divine providence. Their anti-intellectual orientation is part of what puts this religious movement in a comfort zone for those who are themselves ill educated. One can't unify a cohort of people who as a matter of core ethnic identity refuse to acknowledge the legitimacy of the North's victory in the Civil War if you are aren't reactionary.
Evangelical Christianity offers a port in the storm for losers of many shades and stripes that more mainstream Christianity does not. Mainstream Christianity is more open to letting a depressing (for the core constituency of Evangelical Christianity) reality in, mainstream Christianity accepts the authority of intellectuals who necessarily have profound cultural distance from working class flocks as their leaders, and mainstream Christianity is more insistent upon the importance of not sinning in the first place relativite to the importance of never ending forgiveness without regard to culpability than the average self-identified Evangelical Christian knows how to manage. In a world of ugly people, a taboo against mirrors can seem attractive; Evangelical Christianity offers such a world.
If liberals want to make inroads into the people who make up the core of the Evangelical Christian movement, which is closely identified with, although not 100% identical to, the core of the American political conservative movement exemplified in the Tea Party movement and core of the Republican party, it will not suffice to embrace and encourage people who self-identify as Evangelical Christians but operate from outside or at the fringes of that movement.
Instead, liberals have to offer an alternative that can provide an authentic core identity and belief system that works for people who are uneducated and regularly down on their luck who need abundant forgiveness for their psychological well being because they can't figure out how to keep from sinning on a regular basis. They need an alternative that can maintain an unrelenting campaign of calling attention to the failures in their community that need fixing without raising the hackles that outside criticism does, who keep trying even though there is no source of relief in sight. They need to provide people with a worldview that can give them hope in the face of a lack of possibility. They need to offer some filter that can allow these people to make sense of a world that confuses them because they have their feet planted firmly in the past. These people have deep spiritual needs and neither mainstream Christianity nor secular philosophy are doing a good job of serving their needs.
If liberals can solve that riddle to meet those needs, or can change the world in a way so that a critical mass of people no longer need these things, Evangelical Christianity will wither away. Until then, liberals are fighting fire with paper. Every now and then it can smoother a hot spot that is getting out of control, but their own efforts to fight it also fuel the fire.
I suspect that if an alternative is found, it is as likely as not to be something other than mainstream Christianity. For example, Americanized Islam came close to leaping into that role under the leadership of Malcolm X for African-Americans. Mormons, while in many respects a part of the Evangelical Christian movement, similarly offer a different enough community and theological model to offer a genuine alternative to the traditional Evangelical Christian model, even though they do not completely break from that mold. It would likewise be unsurprising to seem some sort of innovation along these lines emerge from the non-denominational megachurch movement. Or, it could be something entirely different. But, until an alternative comes along, Evangelical Christianity, as pernicious as it is, will have staying power because it addresses needs that other movements do not for tens of millions of Americans.
Crack Denver Post Journalist Predicts Autumn Is Coming
Brandon Swedlund and his editors at the Denver Post are hard at work keeping us apprised of what is doing on in the larger world we wouldn't have otherwise been aware of with stories like "Shorter days, cooler temperatures in August hint at autumn's approach."
You don't say. I wonder what crack journalism we can expect next from the Denver Post. "Indications suggest that area schools to start classes again soon."? "Major Christian holiday likely to be celebrated in December this year."? "99.9% of Colorado deaths impact under 115 year old demographic."? "Lunar cycle about 28 days long."?
Needless to say, I recently renewed my subscription to Denver's only daily newspaper more for the coupons and comic reading convenience than for its insight provoking investigative journalism.
You don't say. I wonder what crack journalism we can expect next from the Denver Post. "Indications suggest that area schools to start classes again soon."? "Major Christian holiday likely to be celebrated in December this year."? "99.9% of Colorado deaths impact under 115 year old demographic."? "Lunar cycle about 28 days long."?
Needless to say, I recently renewed my subscription to Denver's only daily newspaper more for the coupons and comic reading convenience than for its insight provoking investigative journalism.
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