Category: Government

Testing Incentives

 

When W. became president, he had two major education initiatives:  vouchers, and "no child left behind."  It is unfortunate that in the face of formidable Democratic opposition, he abandoned vouchers, and stuck with "no child left behind."  The latter policy’s intent is noble, but some of its unintended consequences are perverse. 

Mandatory testing results in educational inefficiency:  teachers teach to the tests, and as the commentary quoted below reports, tests get jiggered to show good results.

The main harm though, is that some of the most important results of good education, like resilience, self-discipline, and creativity, are not readily measured in standardized multiple choice tests.  So programs, such as Montessori, that encourage such results, end up under-appreciated and under-rewarded.

What we most need is for parents to be free to choose in education.  That would result in far greater innovation and improvement in education than the current "no child left behind" standardized testing.

 

(p. A31) If teachers, administrators, politicians and others have a stake in raising the test scores of students — as opposed to improving student learning, which is not the same thing — there are all kinds of incentives to raise those scores by any means necessary.

. . .

A study released last week by the Thomas B. Fordham Institute and the Northwest Evaluation Association found that “improvements in passing rates on state tests can largely be explained by declines in the difficulty of those tests.”

The people in charge of most school districts would rather jump from the roof of a tall building than allow an unfettered study of their test practices. But that kind of analysis is exactly what’s needed if we’re to get any real sense of how well students are doing.

 

For the full commentary, see: 

BOB HERBERT.    " High-Stakes Flimflam."  The New York Times   (Tues.,  October 9, 2007):  A31.

 

 HerbertBob.jpg  Columnist Bob Herbert.  Source of photo:  online version of the NYT column quoted and cited above.

 

United States Cotton Subsidies Hurt Poor African Farmers

 

Dan Sumner did his dissertation many years ago under T.W. Schultz, a great economist, and a great human being.  (Dan was a friend of mine in grad school–we were members of a club that gathered once a month to discuss the works of Bertrand Russell.) 

 

Eliminating billions of dollars in federal subsidies to American cotton growers each year would reduce American cotton production and exports, raise world prices by about 10 percent and modestly improve the incomes of millions of poor cotton farmers in Africa, according to a new study by Oxfam, the aid group.

Agricultural economists at the University of California, Davis, who conducted the study for Oxfam, found that a typical farm family of 10 in Chad, Benin, Burkina Faso or Mali — Africa’s major cotton producers — that now earns $2,000 a year would have an extra $46 to $114 a year to spend if American subsidies were removed.

“Fifty to a hundred bucks is a lot of money to these people,” said Daniel Sumner, chairman of the Department of Agricultural and Resource Economics at the university. “It’s not right to think that changing U.S. subsidies will turn very poor people into middle-class households by our standards. That’s a generational process. But it’s money in their pocket.”

. . .

Dani Rodrik, an economist at Harvard who is skeptical of the importance of reduced agricultural subsidies, said he found Oxfam’s new estimates credible, but said the gains forecast were relatively small.  . . .

. . .

But the authors of the report said that removing American subsidies would permanently shift the price of cotton upward, with prices subsequently fluctuating around a higher average. 

 

For the full story, see: 

CELIA W. DUGGER.  "Oxfam Suggests Benefit in Africa if U.S. Cuts Cotton Subsidies."  The New York Times  (Thurs., June 21, 2007):  A12.

(Note:  ellipses added.)

 

Johnston Book to Expose More Government Subsidies to Wealthy

 

  Source of book image:  http://ecx.images-amazon.com/images/I/51Zc90x8GDL._SS500_.jpg

 

Several days ago, I ran an entry that quoted a revealing and upsetting article showing how a lot of tax dollars are being used to susidize golf holidays for wealthy businessmen. The author of the article was New York Times Pulitzer Prize-winning reporter David Cay Johnston.

In response to my entry, Johnston emailed me to let me know that he has a forthcoming book that will expand on the subject of his NYT piece.

If Johnston’s article is any guide, his book should be of interest. Clicking on the reference below, will take you to the the Amazon page where the book can be pre-ordered in advance to its expected December 27, 2007 release:

Johnston, David Cay. Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill).  Portfolio, 2007.

 

Labor Unions Endorse Hillary and Edwards

 

   Source of graphic:  online version of the WSJ article excerpted and cited below.

 

Union endorsements could provide a big boost with next year’s early, front-loaded primary calendar. Half of all 15.4 million union members live in six states — California, New York, Illinois, Michigan, New Jersey and Pennsylvania — and all but Pennsylvania will have voted by Feb. 5.

Major unions have already split their endorsements between three Democratic candidates: Sens. Hillary Rodham Clinton and Christopher Dodd, and former Sen. John Edwards. Union leaders are loath to repeat the division of support that marred the 2004 election, where major unions endorsed Richard Gephardt and Howard Dean, wasting resources on losing candidates. Only one Republican candidate, former Arkansas Gov. Mike Huckabee, has picked up a major union endorsement.

 

For the full story, see: 

NICK TIMIRAOS.  "HOT TOPIC; U.S. Unions: Still a Political Power?"  The Wall Street Journal  (Sat., September 29, 2007):  A7.

 

Business Should Stop Apologizing for Creating Wealth

 

   Source of book image:  http://hoeiboei.web-log.nl/photos/uncategorized/atlasshrugged.jpg

 

David Kelley’s op-ed piece, excerpted below, was published in the WSJ on October 10, 2007, the 50th anniversary of the publication of Ayn Rand’s greatest novel.

  

Fifty years ago today Ayn Rand published her magnum opus, "Atlas Shrugged." It’s an enduringly popular novel — all 1,168 pages of it — with some 150,000 new copies still sold each year in bookstores alone. And it’s always had a special appeal for people in business. The reasons, at least on the surface, are obvious enough.

Businessmen are favorite villains in popular media, routinely featured as polluters, crooks and murderers in network TV dramas and first-run movies, not to mention novels. Oil company CEOs are hauled before congressional committees whenever fuel prices rise, to be harangued and publicly shamed for the sin of high profits. Genuine cases of wrongdoing like Enron set off witch hunts that drag in prominent achievers like Frank Quattrone and Martha Stewart.

By contrast, the heroes in "Atlas Shrugged" are businessmen — and women. Rand imbues them with heroic, larger-than-life stature in the Romantic mold, for their courage, integrity and ability to create wealth. They are not the exploiters but the exploited: victims of parasites and predators who want to wrap the producers in regulatory chains and expropriate their wealth.

. . .  

. . .   At a crucial point in the novel, the industrialist Hank Rearden is on trial for violating an arbitrary economic regulation. Instead of apologizing for his pursuit of profit or seeking mercy on the basis of philanthropy, he says, "I work for nothing but my own profit — which I make by selling a product they need to men who are willing and able to buy it. I do not produce it for their benefit at the expense of mine, and they do not buy it for my benefit at the expense of theirs; I do not sacrifice my interests to them nor do they sacrifice theirs to me; we deal as equals by mutual consent to mutual advantage — and I am proud of every penny that I have earned in this manner…"

We will know the lesson of "Atlas Shrugged" has been learned when business people, facing accusers in Congress or the media, stand up like Rearden for their right to produce and trade freely, when they take pride in their profits and stop apologizing for creating wealth.

 

For the full commentary/review, see: 

DAVID KELLEY. "Capitalist Heroes."   The Wall Street Journal  (Weds., October 10, 2007):  A21. 

(Note:  ellipsis in Rearden quote was in original; the other two ellipses were added.)

 

UNO Protects Students from Cupcakes (Whether They Want to Be Protected, or Not)

 

Many years ago, I went along with a group of Exec MBA students to Germany.  Among them was Bill Swanson.  Bill had a sense of humor.

At some point in the trip, I spilled ketchup on my tie.  Bill’s response was that normally a ruined tie would be sad, but given my tie, the ketchup was an improvement.

Yes, Bill has a sense of humor; so I’m hoping the story below is a joke.

That’s what I hope, but what I fear is that the story below is one more example of the inefficient, sometimes painful (like when an 8th grader can’t take aspirin to middle school), and sometimes funny, things that we are driven to do to protect ourselves from being sued, in an economy where congress has empowered personal injury lawyers to frequently sue for huge and unpredictable compensatory and punitive damages.  (When Joe Ricketts, Ameritrade founder, spoke to my Exec MBA class a few years ago, he said that the biggest threat facing the U.S. economy was the proliferation of tort law suits.)

So it’s either a bad joke; or (most likely) it’s UNO protecting itself against every potential law suit; or it’s a third, and worse, alternative—which would be if the story below is to be taken at face value. 

In that case we would have to conclude that some UNO staff have nothing better to do with their time than to paternalistically ‘protect’ young adults from a minuscule risk of illness from freely choosing to purchase and eat cupcakes being sold by fellow students to raise money for good causes.

 

Here is an excerpt from the page one, lead story, of the Sat., Oct. 6, 2007, Omaha World-Herald:

 

(p. 1A)  Guns. Drugs. Bake sales.

What do these things have in common?

All have been banned at the University of Nebraska at Omaha campus.

Citing safety and health concerns, UNO last week prohibited selling homemade food items at campus fundraisers.

Officials said the prevalence of serious food allergies and the potential for contaminated food — either by accident or deliberately — led UNO to adopt the policy, which then drew complaints from student groups.

"The primary issue is the health of the students and the safety of the students," said Bill Swanson, assistant to the vice chancellor in the Career Exploration and Outreach Office.

No one on the UNO campus has reported problems with contaminated food purchased at a bake sale, Swanson said.

But there have been incidents around the country, he said, and those were enough to prompt a discussion among officials.

The decision has come under fire from students who say the restriction cuts off small student (p. 2A) groups from their primary fundraising source.

The Public Relations Student Society of America traditionally held bake sales once a month to raise money for national conferences, local business luncheons and volunteer work, said the group’s president, Katie Dowd.

The group raised about $1,500 a year hawking homemade baked goods donated by members.

"It’s a big blow to us," said Dowd, who called the potential for food contamination from her group’s offerings "very unlikely."

 

For the full story, see: 

ELIZABETH AHLIN.  "Goodies ban half-baked, UNO students say." Omaha World-Herald  (Saturday, October 6, 2007):  1A & 2A.

 

A Toast to the Feisty Old Lady Entrepreneur Who Fought the Government, and Won

(p. B10) When Virginia-based vintner Juanita Swedenburg discovered Prohibition-vintage laws prevented her from mailing cases of wine to customers in New York, she decided to make a federal case of it.

"I was furious, never so cross, as cross as I can get," Ms. Swedenburg told the Washington Post in April 2005. A month later, the Supreme Court ruled 5-4 in Swedenburg v. Kelly that a New York law preventing wine sales across state lines was unconstitutional.

. . .

To Ms. Swedenburg, it was a matter of principle, not peddling more vino, says her son, Marc Swedenburg. She shut down her mail-order business when she filed suit in 2000, to ensure she wasn’t violating the law. The family winery still does very little mail-order sales.

Ms. Swedenburg’s day before the nation’s high court was set in motion in the early 1990s, when lawyer Clint Bolick of the Institute for Justice, a Washington D.C.-based libertarian law firm, stopped by her Middleburg, Va., tasting room. There, he discovered "a chardonnay with the toastiest nose I can remember," Mr. Bolick wrote in his book "David’s Hammer" (2007), which includes Ms. Swedenburg’s story in an anthology of David vs. Goliath tales. Mr. Bolick and Ms. Swedenburg got to talking, he writes, "When I told her that, among other things, I challenged regulatory barriers to entrepreneurship, she exclaimed, ‘Have I got a regulation for you!’ "

. . .

Ms. Swedenburg expressed regret that her husband didn’t see her constitutional arguments prevail. "He never made fun of me for doing something as foolish as this. Some men would say, ‘What are you getting into all this foolishness for?’ Not him," she told the Washington Post. "He would always be very quiet when I’d go off on my rampage about the situation." The decision in her favor was rendered on May 16, 2005, the first anniversary of his death. Ms. Swedenburg was still bouncing around on her tractor days before her death at age 82 on June 9 in Middleburg.

 

For the full story, see:

STEPHEN MILLER.  "REMEMBRANCES; Juanita Swedenburg (1925 – 2007); Passionate Winemaker Won Fight To Sell Product Across State Lines." The Wall Street Journal (Sat., June 16, 2007):  A6.

(Note:  ellipses added.)

 

The reference for the Bolick book, is:

Bolick, Clint. David’s Hammer: The Case for an Activist Judiciary. Washington D.C.: Cato Institute, 2007.

 

  Source of book image:   http://images.barnesandnoble.com/images/12270000/12274961.jpg

 

Government Subsidies Support Wealthy Golfers

 

Wealthy greeting card executive Mike Keiser created and owns the Bandon Dunes Golf Resort, which caters to wealthy corporate executives who fly to the course in small private corporate jets.  Source of the photo:  online version of the NYT article cited below.

 

(p. C1)  BANDON, Ore. — Mike Keiser, who made a fortune selling greeting cards on recycled paper, turned this remote spot on the southern Oregon coast into a golfing mecca that attracts wealthy people in private jets from around the world. 

To many in this hard-luck town of 3,000, Mr. Keiser is an economic hero. Work became scarce after the timber and fishing industries collapsed a quarter-century ago, and his Bandon Dunes Golf Resort, a few miles north of town, has created 325 full-time jobs, plus hundreds more part-time jobs. Mr. Keiser earns millions of dollars in profits each year.

But beneath this model of enterprise, largely hidden subsidies from airline passengers, state-lottery players, taxpayers and company shareholders support the benefits that the owner, workers and visitors at Bandon Dunes enjoy.

Airline passengers and lottery players are paying for a $31 million airport expansion to serve the 5,000 business jets that arrive each year, filled almost entirely with golfers. Many of them are executives of publicly traded companies flying at a small fraction of the real cost of their trips; taxpayers and shareholders bear nearly all of these costs.

Much controversy swirls around the subsidies and tax exemptions state and local governments offer expressly to attract businesses to a community. But far less attention has been focused on the many kinds of indirect favors that are showered on places like Bandon Dunes through government policies (p. C6) that influence the flow of money from the public to private interests and often serve to reinforce benefits for those who are already successful.

. . .

No official tally of business subsidies exists, but in separate studies Peter S. Fisher of the University of Iowa and Kenneth F. Thomas of the University of Missouri estimated that state and local subsidies aimed at creating jobs total about $50 billion annually. More subtle subsidies like those that benefit Bandon Dunes are not counted in those figures and may be even larger.

Such government subsidies have been challenged as inefficient by a broad spectrum of critics, from the libertarian Cato Institute and the conservative Heritage Foundation to liberal groups like Good Jobs First.

To be sure, said Martin S. Feldstein, a Harvard University economics professor and a former chief economic adviser to President Ronald Reagan, some government subsidies can be beneficial for society.

“A subsidy for flu vaccines is good,” he said, “because if you are vaccinated I am less likely to get flu by contagion.” But job subsidies are a drag on the economy, he added, “unless the local gain exceeds the loss in the rest of the nation.”

 

For the full story, see: 

DAVID CAY JOHNSTON.  "Assisting the Good Life."  The New York Times  (Fri., June 15, 2007):  C1 & C6.

(Note:  ellipses added.) 

 

  A few of the roughly 5,000 business jets that carry executive golfers to the public airport, built and expanded partly with fees from middle-class airline travelers.  Source of the photo:  online version of the NYT article cited above.

 

Latin America Discourages Entrepreneurs

 

LatinAmericanCompetitivenessGraph.gif   Source of table:  online version of the WSJ article cited below.

 

(p. A18) Economist Joseph Schumpeter (1883-1950) may be best known for his innovative work showing the link between entrepreneurial discovery and economic progress.

But as Carl Schramm, president of the Kauffman Foundation of Entrepreneurship has pointed out, Schumpeter’s insights about risk-takers didn’t make him an optimist.

In a speech last year to European finance ministers in Vienna, Mr. Schramm explained Schumpeter’s fears: He "worried that entrepreneurial capitalism would not flourish because the bureaucracies of modern government and big corporations would dampen innovation — the process of ‘creative destruction’ would be too ungovernable for a modern, Keynesian-regulated economy to tolerate." As a result, Mr. Schramm said, Schumpeter thought that "the importance of entrepreneurs would fade over time as capitalism sought predictability from governments who would plan economic activity as well as order social benefits."

Mr. Schramm’s comments caught my attention because they so accurately describe Latin America. There the entrepreneur has been all but run out of town by the bureaucracies that Schumpeter feared. Growth has suffered accordingly.

The World Bank’s annual "Doing Business" survey, released last week, demonstrates the point. The 2008 survey, which evaluates the regulatory climate for entrepreneurs in 178 countries, finds that Latin America and the Caribbean was the slowest reforming region this year and that it "is falling further behind other regions in the pace" of reform.

. . .

The most important lesson for Latin America from the World Bank’s report is that its competitors around the world are working to unleash entrepreneurial spirits, and doing nothing is not an option. As Mr. Schramm told his Vienna audience, "Schumpeter saw what a century of evidence would prove: Socialism has not sustained economic growth." Now, if only more Latin American policy makers would catch on.

 

For the full commentary, see: 

MARY ANASTASIA O’GRADY.  "THE AMERICAS; No Room for Entrepreneurs."  The Wall Street Journal   (Mon., October 8, 2007):  A18.

(Note:  ellipsis added.)

 

Suing the Pants Off Private Enterprise: Illustrating the Case for Tort Reform

 

  The Dry Cleaners that was sued for $67.3 million dollars, to compensate a Washington, D.C. judge for a lost pair of pants.  Source of the photo:  online version of the NYT article cited below. 

 

WASHINGTON, June 12 — Roy L. Pearson Jr. wanted to dress sharply for his new job as an administrative law judge here. So when his neighborhood dry cleaner misplaced a pair of expensive pants he had planned to wear his first week on the bench, Judge Pearson was annoyed.

So annoyed that he sued — for $67.3 million.

The case of the judge’s pants, which opened for trial in a packed courtroom here on Tuesday, has been lampooned on talk radio and in the blogosphere as an example of American legal excess. And it has spurred complaints to the District of Columbia Bar and city officials from national tort reform and trial lawyer groups worried about its effect on public trust in the legal system.

“I don’t know of any other cases that have been quite this ridiculous,” said Paul Rothstein, a professor of law at Georgetown University.

. . .

“You are not a we, you are an I,” Judge Bartnoff said in one of several testy exchanges with Judge Pearson, 57, who is representing himself. “You are seeking damages on your own behalf, and that is all.”

Later, while recounting the day he says the cleaners tried to pass off a cheaper pair of pants as his, Judge Pearson began to cry, asking for a break and dabbing tears as he left the courtroom.

 

For the full story, see: 

ARIEL SABAR and SUEVON LEE.  "Judge Tries Suing Pants Off Dry Cleaners."  The New York Times (Weds., June 13, 2007):  A13.  

 

 ChungsDryCleaners.jpg  The Korean immigrant owners of the dry cleaners who were being sued for $67.3 million dollars.  Source of the photo:  online version of the NYT article cited below. 

 

Mugabe Driven by Quest for Power, More than from Paranoia, or Marxism: More on Why Africa is Poor

 

No one outside of Mr. Mugabe’s inner circle, of course, can say with certainty why he has pursued policies since 2000 that have produced economic and social bedlam. For his part, Mr. Mugabe says Zimbabwe’s chaos is the product of a Western plot to reassert colonial rule, while he is simply taking steps to fight that off.

Among many outside that circle, however, the growing conviction is that Zimbabwe’s descent is neither the result of paranoia nor the product of Mr. Mugabe’s longstanding belief in Marxist economic theory. Instead, they say, Zimbabwe is fast becoming a kleptocracy, and the government’s seemingly inexplicable policies are in fact preserving and expanding it.

. . .

Mr. Mugabe’s government declares currency trading illegal, but regularly dumps vast stacks of new bills on the black market, still wrapped in plastic, to raise foreign exchange for its own needs, business leaders and economists say.

The nation’s extraordinary hyperinflation, last pegged by analysts at 10,000 percent a year, is an economic disaster that, by all accounts, the government needs to address. Yet after it ordered merchants in July to slash their prices, cadres of policemen and soldiers moved into shops to enforce the new controls, scoop up bargains and give friends and political heavyweights preferential access to cheap goods.

. . .

Mr. Mugabe’s 25-bedroom mansion in Borrowdale, the gated high-end suburb of Harare, the capital, is the locus of a boomlet that has spawned luxury homes for government and party officials. (Mr. Mugabe said his mansion was built with goods and labor donated by foreign governments.)

Mr. Mugabe arrived to open Zimbabwe’s Parliament this month in a Rolls-Royce. Equally telling, the legislature’s parking lot was crammed with luxury cars.

Such riches have been accompanied by a steep decline in living standards for just about everyone else. The death rate for Zimbabweans under the age of 5 grew by 65 percent from 1990 to 2005, even as the rate for the world’s poorest nations dropped. Average life expectancy here is among the world’s lowest, according to the United Nations.

 

For the full commentary, see: 

MICHAEL WINES.  "News Analysis; Zimbabwe’s Chaos: The Powerful Thrive."  The New York Times (Fri., August 3, 2007):  A8. 

(Note:  ellipses added.)