The message to bank executives today is simple: build your bank to be as big as possible – and then keep growing. If you manage to become big enough, you and your employees are not just too big to fail, but also too big to jail.
The Obama administration has just made everyone else the sucker.
Category Archives: Government
Markets determine price
The New York Times reports that rising gas prices in the U.S. may harm Obama’s re-election chances. So Obama emphasized increased oil production in the U.S., which has recently, and likely temporarily, become a net exporter of oil.
But economist Dean Baker brings us all down to earth with his post today. With a bit of churlishness, Baker tells his readers:
It is the world market that determines prices, not domestic production. We’re going to say that a few more times just in case any reporters are reading this.
It is the world market that determines prices, not domestic production. It is the world market that determines prices, not domestic production. It is the world market that determines prices, not domestic production.
The U.S., Baker reminds us, produces 6 million barrels of oil a day. The world demand for oil is a bit under 90 million barrels a day. Do the math, and you discover that our domestic production is about seven percent. Adding a million barrels here or there will not affect the price of oil. By the way, Americans consume 22 percent of the world’s oil, or about three times what we produce.(Chart below from CIA World Factbook)
Next, I want to rank GDP.
Now let’s look at energy intensity (oil consumed and GDP).
The UK, we see, uses oil more efficiently than we do, as does the European Union as a whole. India and China, not so much.
One way to reduce oil consumption is to raise the price. We should expect to see that happening as gasoline prices continue rising.
QED.
Rats in the classroom
Apropos of my previous post on Finland’s educational system comes this disturbing report in the New York Times.
After a long legal battle and amid much anguish by teachers and other educators, the New York City Education Department released individual performance rankings of 18,000 public school teachers on Friday, while admonishing the news media not to use the scores to label or pillory teachers.
This is utter madness, and so far removed from what Diane Ravitch observed during her visit to Finland.
When asked how Finnish teachers would react if they were told they would be judged by their students’ test scores, he replied, “They would walk out and they wouldn’t return until the authorities stopped this crazy idea.”
Americans are crazy to the core, which is why a ranking of teachers based on student test scores can be treated as not only acceptable but desirable. It’s one thing to rank college football players for draft purposes; there’s a wealth of multi-year data combined with a considerable amount of gut-feelings. But there are so many variables involved in teacher evaluations that it’s absurd to even pretend that using test scores reveals anything useful.
The release of the individual rankings has even been controversial among the scientists who designed them. Douglas N. Harris, an economist at the University of Wisconsin, where the city’s rankings were developed, said the reports could be useful if combined with other information about teacher performance. But because value-added research is so new, he said, “we know very little about it.” Releasing the data to the public at this point, Dr. Harris added, “strikes me as at best unwise, at worst, absurd.”
Just consider how sensitive the test scores are to minor year-to-year deviations. Here’s the Times:
…a teacher whose students score well above average on the state’s English test two years in a row but get a few more questions wrong the second year could see her value-added score drop by 50 percentage points.
While the news media may refrain from using the rankings to “label or pillory teachers,” you just know that the Internet will be buzzing with social-media posts and exchanges. Once this stuff gets out, the crazies attack without mercy or shame.
We do well to remember what happened to the Los Angeles teacher who was so devastated by the public disclosure of his “rank” that he killed himself. Both former colleagues and students alike thought he was a good and compassionate educator, beloved by all. No matter, the testing gods and irresponsible media (in his case, the Los Angeles Times), turned the distraught teacher, his peers, and their pupils into rats in the classroom.
Now it’s New York City’s turn.
One reason we’re continually screwed
While I admit to not paying all that much attention to the Republican race for the Oval Office, one can’t avoid reading reports of this or that candidate’s inane remark about nearly any topic. I’m sure, however, that the debates are delightful theater and grist for the punditocracy’s mill.
Why, then, are the crazies not only allowed to run loose but appealing to the basest instincts of the Republican faithful? The answer, I believe, reveals a deep flaw in our body politic, one that ensures congressional dysfunction.
These many primaries and caucuses along the Republican presidential trail attract the looniest of the loons. Though they are a small subset of who will vote this November, they determine the eventual GOP nominee. Thus, to curry favor with the daft and the dumb, the candidates must ape their would-be supporters. Since this small slice of the party knows no limits to wackiness, the presidential hopefuls are driven further and further to absurdity.
Having said this, I quickly acknowledge that most of the Republican candidates are sincerely nuts, with long records to prove it. I have in mind Santorum, Gingrich, and Paul.
I suspect that the GOP leaders would prefer less craziness and more, well, common sense. That’s why their likely choice to face Obama is Mitt Romney, who managed to woo liberal voters in generally liberal Massachusetts. Also, his father may have been the epitome of moderate Republicanism, which exists now only in memory. Their calculus is obvious: independent voters, an ever-expanding group, tend to decide outcomes in two-party races; and they give wide berth to whackos.
As the Republican campaign motors on from one crazy village to another, the extremists are making life difficult for Romney, who has demonstrated that he used to be, and probably still is, rather middle-of-the-road in his views. After all, he once supported a woman’s right to choose, and he delivered the blueprint of Obamacare. But his days as governor serve as a political bête noire to the madding crowd.
Whether or not Obama gains a second term, the whackos are determined to maintain control of Congress. Should they prevail, we’ll witness the further wrecking of government. No good will come of it.
Why the U.S. is not Greece
We often hear that America could suffer the same fate as the Greek’s if we don’t cut spending and reduce the federal debt. It’s an argument, however false, that just won’t go away.
So, why is the U.S. not like Greece? I invite you to read this, then pass it along to those who insist otherwise. I’ll quote this brief summary:
What follows is a self-defense lesson on why the United States is not Greece—or Europe. The U.S. economy is far larger and more productive than Greece. The United States has many more tools in its macro-economic policy box than countries in the eurozone. And while calls for austerity have kept the United States from undertaking government spending and investment large enough to support a robust economic recovery, at least thus far, the United States hasn’t undertaken the same self-defeating austerity measures Europe has. If we learn the right lessons from what is happening in the eurozone now, we never will.
Like a woman scorned
Shakespeare may have had Diane Ravitch in mind when he penned those words. She, the professor of education who once championed No Child Left Behind, had an epiphany a couple of years ago. The law, she came to realize, was deeply flawed in its execution if not also its intentions. While I had no difficulty recognizing the law’s defects, I do have to appreciate Ravitch’s tardy arrival to the party of common sense. Better late than never.
We Americans love to believe that we are exceptional in all ways, from our form of government to our social mores to our politics to our vast military. Against obvious and compelling facts to the contrary, we also insist that our education system is the best in the world. Well, not quite, perhaps. It would indeed be at the top were it not for all those lousy teachers that no one can banish from the profession.
Ravitch is peeved, first with her sweeping condemnation of the new testing culture in her book The Death and Life of the Great American School System: How Testing and Choice are Undermining Education, and most recently with her essay in the New York Review of Books. Here she reports that there is a better way, and it’s to be found in Finland.
She begins:
In recent years, elected officials and policymakers such as former president George W. Bush, former schools chancellor Joel Klein in New York City, former schools chancellor Michelle Rhee in Washington, D.C., and Secretary of Education Arne Duncan have agreed that there should be “no excuses” for schools with low test scores. The “no excuses” reformers maintain that all children can attain academic proficiency without regard to poverty, disability, or other conditions, and that someone must be held accountable if they do not. That someone is invariably their teachers.
Ah, those pesky, evil teachers. As it turns out, the aforementioned reformers may be on to something, it’s just that they have no clue as to how we might transition from the status quo to a more effective system. Ravitch, with much evidence, thinks that the path is rather clear and obvious, should the reformers pull their collective head out of their chauvinist ass.
Ravitch is particularly annoyed with Bill Gates, Jr., the CEO-turned-philanthropist who is throwing his money into a wide array of issue-pots, educational reform being one of them. On the pesky causality conundrum of poverty and education, she disapprovingly quotes Gates: “Let’s end the myth that we have to solve poverty before we improve education. I say it’s more the other way around: improving education is the best way to solve poverty.”
Wrong, Bill. Ravitch asks why a country as wealthy as ours can’t do both.
So, what is it about Finnish schools that should draw our attention? Ravitch cites four reasons, and I quote:
First, Finland has one of the highest-performing school systems in the world, as measured by the Programme for International Student Assessment (PISA), which assesses reading, mathematical literacy, and scientific literacy of fifteen-year-old students in all thirty-four nations of the Organisation for Economic Co-operation and Development (OECD), including the United States. Unlike our domestic tests, there are no consequences attached to the tests administered by the PISA. No individual or school learns its score. No one is rewarded or punished because of these tests. No one can prepare for them, nor is there any incentive to cheat.
Second, from an American perspective, Finland is an alternative universe. It rejects all of the “reforms” currently popular in the United States, such as testing, charter schools, vouchers, merit pay, competition, and evaluating teachers in relation to the test scores of their students.
Third, among the OECD nations, Finnish schools have the least variation in quality, meaning that they come closest to achieving equality of educational opportunity—an American ideal.
Fourth, Finland borrowed many of its most valued ideas from the United States, such as equality of educational opportunity, individualized instruction, portfolio assessment, and cooperative learning. Most of its borrowing derives from the work of the philosopher John Dewey.
In Finland, 98 percent of children under seven attend state-funded pre-schools. When they are seven, children begin their formal education, until the age of 16, at which point they choose between an academic track or vocational high school. About half choose the latter. During those nine years students and teachers occupy a “test-free zone.” Indeed, annual standardized tests are abhorred. Yet, Finnish pupils routinely rank at or near the top in international tests, administered in all OECD countries.
Instead of teaching to the test, the inevitable consequence of test-based teacher evaluations, Finland’s educators expose children to a comprehensive curriculum. If they make it to college, their tertiary education is free. Goodbye student loans.
So, what’s the biggest difference between Finland and the U.S.? Teacher training. Ravitch:
Finland’s highly developed teacher preparation program is the centerpiece of its school reform strategy. Only eight universities are permitted to prepare teachers, and admission to these elite teacher education programs is highly competitive: only one of every ten applicants is accepted. There are no alternative ways to earn a teaching license. Those who are accepted have already taken required high school courses in physics, chemistry, philosophy, music, and at least two foreign languages. Future teachers have a strong academic education for three years, then enter a two-year master’s degree program. Subject-matter teachers earn their master’s degree from the university’s academic departments, not—in contrast to the US—the department of teacher education, or in special schools for teacher education. Every candidate prepares to teach all kinds of students, including students with disabilities and other special needs. Every teacher must complete an undergraduate degree and a master’s degree in education.
Ravitch notes that beginning teachers are paid roughly the same as their American counterparts. But after 15 years in the classroom, Finnish teachers make more than U.S. teachers. Also, because of their rigorous training, teachers enjoy much higher professional standing than those who teach in America’s public schools. Moreover, Finnish teachers are largely left alone to educate their pupils. There is no top-down decision making or bland state-mandated curricula. And because the selection process is so exacting, all Finnish teachers are really above average. Thus, there is no movement to rid the profession of mediocre members; there aren’t any.
As for the goal of Finland’s educational system, Ravitch tells us:
In contrast, the central aim of Finnish education is the development of each child as a thinking, active, creative person, not the attainment of higher test scores, and the primary strategy of Finnish education is cooperation, not competition.
That sounds so un-Republican.
The GOP and debt
Though Dick Cheney, invoking Ronald Reagan, declared that deficits don’t matter, you wouldn’t think that by listening to the Republicans, especially those running for the White House. Nevertheless, their proposed tax policies, with perhaps one exception, would send the federal debt into the stratosphere.
That’s because all of the candidates, save Ron Paul, champion more tax cuts. With lower tax rates, the federal government faces reduced revenues. If there are no corresponding reductions in spending, the annual deficits and the accumulated debt skyrocket.
That’s the judgment of U.S. Budget Watch, which released its analysis of the GOP candidates’ tax plans. You can view the report here (pdf). Here’s a chart from the report.
From the report’s executive summary:
Historically, debt held by the public has averaged less than 40 percent of GDP since 1970. Today’s debt is roughly 70 percent of GDP and rising fast, particularly due to the retirement of the baby boom population and rapid health care cost growth. The United States is currently at a crossroads, where fundamental but thoughtful changes can be made now, or else far more painful ones can be forced upon us down the road.
You’ll note that by 2021, Gingrich’s proposals, if enacted, would boost the nation’s debt to more than 110% of GDP. Santorum’s plan would be slightly less, at nearly 105% of GDP. Only Paul’s proposal would yield a debt-to-GDP ratio of less than 80% in the out-year.
Did you pick up on “thoughtful changes”? It has never occurred to me to associate ‘thoughtful’ with any one of the GOP candidates.
The content of their character
Conservatives, as a rule, loathe affirmative action. Their opposition stems in part from their abhorrence of government itself and its intervention in any number of issues, from education to so-called entitlements, though they are hardly reticent about imposing their moral views on people’s bedroom behavior. The more sinister part of their opposition is surely racism; they prefer whiteness against color.
So, it appears that conservatives may get their wish as the U.S. Supreme Court takes up the case of Abigail Fisher, who sued the University of Texas for racial discrimination. Since the court had previously allowed for the use of race in a college’s admission selections, the mere fact that the court has placed Ms. Fisher’s case on its docket can mean only one thing: the court will reverse itself. It’s highly unlikely the court would consider the matter only to affirm its previous decision, since refusing the case would have the same effect.
Texas has an unusual admission’s policy. Any high school student graduating in the top ten percent of his or her class can attend the state’s public colleges and universities. Ms. Fisher, who is white, did not. She was therefore placed in a pool in which race is a factor for admissions. But when she was passed over by the University of Texas, she sued, charging that she was denied entrance because of race.
The complexion of the current court is decidedly conservative. It will be even more so since Justice Elena Kagan has recused herself, likely because as Obama’s solicitor general she was involved in the appellate process, according to the New York Times. Moreover, the court’s frequent swing vote belongs to Justice Kennedy, who, as the Times points out, has never voted to uphold an affirmative action policy. The numbers, then, are five against race-based policies and three in favor.
The Times suggests that this case, Fisher v. University of Texas, may have limited effect, even if the court rules in her behalf, which it is expected to do. However, as we learned from the Citizens United case, this court has no compunction about expanding its reach beyond the rather narrow issue at hand. Indeed, its ruling in the latter upended a hundred years of precedent regarding congressional restrictions on campaign finance.
It was Martin Luther King’s dream that we would eventually become a society that judged people by the “content of their character” rather than on the “color of their skin.” Conservatives, including those on the Supreme Court, have turned round that message, using it to preserve preferential treatment of white citizens.
Affirmative action policies were designed to compensate for generations of racial oppression, whites over people of color. The policy makers assumed that exclusive reliance on merit (e.g., GPA, SAT scores) would effectively reduce opportunities for non-white races. Implicit in this assumption was that years of oppression had denied to people of color those conditions that nurtured or enhanced childhood learning, conditions enjoyed almost exclusively by whites.* By taking affirmative action to redress race-based inequities, policy makers and courts hoped to diversify post-academic achievement.
With the court’s expected decision on Fisher v. University of Texas, admission policies at most, if not all, levels will be devoid of racial considerations. Color will no longer matter, thus perverting Dr. King’s dream.
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* It does not follow that no white children suffer from impoverished conditions that prevent above-average academic performance. Indeed, in absolute numbers, more Caucasians live in poverty than do African Americans or Latinos.
Whither democratic markets?
Thomas B. Edsall, writing for the New York Times, asks a provocative question: “Is this the end of market democracy?” While he stops short of providing an answer, he surveys the political and economic landscape to reveal sharp divisions in both the cause of and the cure for what ails us. He quotes Lawrence Summers, now back at Harvard:
Serious questions about the fairness of capitalism are being raised. These are driven by sharp increases in unemployment beyond the business cycle – one in six of American men between 25 and 54 is likely to be out of work even after the economy recovers – combined with dramatic rises in the share of income going to the top 1 percent (and even the top 0.01 percent) of the population and declining social mobility. The problem is real and profound and seems very unlikely to correct itself untended.
Focus on that last line. The problem “seems very unlikely to correct itself untended.” This suggests more of the same, rising wealth amidst a shrinking middle class marked by high unemployment—unless someone tends.
How shall we tend?
Edsall cites Jeffrey Sachs, who advocates: “a social democracy — capitalism plus a hefty dose of state support for families, education, early childhood development, higher education, and active labor market policies — can still do the job. The performance of northern Europe, around 120 million people including Germany, Austria, the Netherlands, Denmark, Sweden and Norway, provides a good illustration of this success.”
Readers of this blog will surely recognize that theme. But, as Edsall quickly points out, the Republicans, especially this current crop of presidential hopefuls, rebuke such a perceived turn toward “socialism,” exposing their ignorance, their cynicism, or both. If they are aware of the Nordic exception, they refuse to admit its lessons for fear of denigrating the U.S.A., which at all times and under all circumstances must be forever praised as the “shining beacon on a hill.”
Is the Great Divergence a sign of market failure? Not so, according to a couple of economists cited in Edsall’s piece.
In a paper published by the Council on Foreign Relations, Spence and co-author Sandile Hlatshwayo argue that the employment problems of the United States do not result from market failure. Just the opposite: the problems arise from an exceptionally efficient global marketplace. Instead of benefiting from the market, many in the United States, particularly those holding mid-level skill jobs that can be performed at lower cost overseas, are paying the costs of efficiency — the victims, in effect, of creative destruction.
All of which begs the question: What about the Nordic experience? Why doesn’t “an exceptionally efficient global marketplace” adversely impact Finland, or Sweden, or Norway as it allegedly does here? Why is “creative destruction” operating in the U.S. and not Germany and Denmark?
Edsall concludes his article thusly:
The debate over the workings of democracy, the market, technology and globalization remains unresolved. The political system instinctively avoids this debate, despite its salience and centrality, because the political costs of engagement are likely to substantially outweigh any potential gains. At an undetermined point in the not too distant future, however, as the “gale of creative destruction” blows through the heartland, the debate will become inescapable.
For better or worse, and I think it’s the latter, our political mechanisms, however defined or originated, thwart genuine tending. Edsall suggests that there are high “political costs of engagement.” I believe he’s correct. Neither side of the debate dares to address the fundamental problems of our economy, which is clearly not working for the Rest of Us. Instead the politicians appeal narrowly to their wealthy beneficiaries as they also stoke the fires of ideological hate.
In a previous post I mentioned an op-ed that appeared in the New York Times. Eric X. Li, a self-described “venture capitalist,” offered this gloomy assessment:
History does not bode well for the American way. Indeed, faith-based ideological hubris may soon drive democracy over the cliff.
I suspect that the very wealthy shrug off such premonitions. Regardless of what happens in America they will surely benefit, because their wealth allows them to exploit opportunities on a truly global scale. They are not, strictly speaking, Americans. Nor are they democratic in any meaningful sense. Rather, they are nation-neutral, just like the international economy; and they don’t give a damn about the Rest of Us, because they don’t have to. Indeed, we are a mere nuisance, at best, invisible, at least.
What I find truly pathetic is that the Rest of Us don’t seem to give a damn either. We’re as likely to chalk up our struggles to the natural order of things or the efficient operation of markets as to believe that all of this is deliberate, the continuing result of unopposed machinations funded and orchestrated by the One-percenters.
We are therefore right to condemn Congress and its corrupt politicians.* Yet, our political system was devised to give the people voice—”we the people” established a written constitution. As it turns out we are a representative democracy. Thus, we are supposed to rely on the people we elect to carry out our preferences. Therein lies the fatal flaw.
What we would prefer gains no traction, because our voice can hardly be heard over the din of unbridled capital. The folks we send to Washington elevate remaining in place to the highest priority. While they will need our votes to stay in office, how we vote is largely determined by campaign rhetoric, bought and paid for by monied interests. To assume that none of the propaganda makes a difference is to ignore what has happened in the Republican primaries. Candidates’s fortunes have risen and fallen in the minds of the voters by one slew of attack ads or another. This expensive negative shit matters.
Insofar as our “representatives” cotton to the well-heeled with impunity, there seems little prospect of crafting an alternative economy that benefits the Rest of Us—unless we dare think outside the political box. If the status quo isn’t working, we might consider something else.
All options are on the table. The debate is “inescapable.”
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* Corrupt, def.: “having or showing a willingness to act dishonestly in return for money or personal gain.”
Another Great Divergence indicator
Republicans excoriate Obama for runaway spending and mounting debt. They conveniently forget the fiscal disaster under G.W. Bush. Nor do they remember the mess wrought under their ideological hero, Ronald Reagan. So let’s take a look at this chart from the 2011 Economic Report of the President.
Once again, after relative fiscal calm during the Truman, Eisenhower, Kennedy, and Johnson administrations, deficits became the norm under the administrations of Nixon, Ford, Carter, Reagan, and the first Bush—and thus coinciding with the Great Divergence. It was only under the Clinton administration that the government produced a surplus, reaching a high of $236.2 billion in Clinton’s last year. Then came G.W.
Over his two terms the core conservative principle of balanced budgets took a hike. Huge tax cuts, mostly for the wealthy, sharply reduced revenues. Meanwhile, G.W. had an bone to pick with the man who tried to kill his daddy. His wars in Iraq and Afghanistan cost upwards of three trillion dollars by some estimates. Yet, there were no corresponding revenues. Spending more than you take in is the very definition of deficit. No matter—Bush was a Republican and thus deserving of praise and honor. Besides, “deficits don’t matter,” proclaimed Darth Vader.
But that’s surely not the mantra among today’s GOP. Why, if we don’t chop spending we’ll become the next Greece. We just can’t afford to put people back to work, fix roads, pay teachers, or support seniors.
So, let’s raise taxes.
Fie!—exclaim the Republicans. Are you crazy? You’ll undermine the “job creators.”
Deficits, it seems, matter only when a Democrat occupies the Oval Office.
