Your editors did the readers a disservice by not revealing the more recent partisan affiliation of the author of "All's not fair in health reform bills," (Boston Globe, December 10, 2009: A19).
Dr Holz-Eakin served as non-partisan director of the Congressional Budget Office from 2003 to 2005. However in 2007 and 2008 he was chief economic adviser to the McCain Presidential Campaign. This I think nullifies his non-partisan credentials.
Yes, there is much that is unfair in the bill: how about preventing women paying for abortion insurance coverage themselves?
Most of the issues he points to are endemic in tax/benefit laws. In this case, more gradual tapering off of the subsidies would be effective in removing the traps.
Sent to Boston Globe
Sent to Boston Globe
Sunday, December 13, 2009
Meltown causes are still in place
I agree with your op-ed writer, Frank Porter, that the rating agencies cannot continue to go on as they have in the past (Meltdown causes are still in place, Boston Globe, December 9, 2009: A19).
My solution would be a bit different, let the agenies' paymasters be the investors. Each financial transaction would have a small fee attached to it, like a Tobin tax. These fees would be used to pay the rating agencies; to keep them honest, a portion of the pay would be tied to achievement, that is the medium and long term accuracy of their ratings.
Such a system would eliminate the current conflict of interest faced by the rating agencies who are paid by the very firms/issuers they rate.
Sent to the Boston Globe (also sent a similar letter to the NYTimes)
My solution would be a bit different, let the agenies' paymasters be the investors. Each financial transaction would have a small fee attached to it, like a Tobin tax. These fees would be used to pay the rating agencies; to keep them honest, a portion of the pay would be tied to achievement, that is the medium and long term accuracy of their ratings.
Such a system would eliminate the current conflict of interest faced by the rating agencies who are paid by the very firms/issuers they rate.
Sent to the Boston Globe (also sent a similar letter to the NYTimes)
Friday, December 4, 2009
Harvard Ignored Warnings
It terrifies me that someone who insisted that Harvard gamble with its lunch money is now a senior economic adviser to the President (Harvard ignored warning about investments, Boston Globe, November 29, 2009: A1, A7).
Sent to Boston Globe
Sent to Boston Globe
U.S. to Pressure Bankers
The government is hoping to pressure bankers into reducing the mortgage payments to be made by distressed homeowners (U.S. to Pressure Mortgage Firms for Loan Relief, New York Times, November 29, 2009: A1, A21).
Bankers have already demonstrated that they have no shame, so such pressure is futile. There are also structural impediments to companies being able to do what the government wants. The mortgage servicers have a fiduciary duty to the mortgage holders and would have to get their permission for any downgrading. As each mortgage has been diced and shredded into multiple derivative products, each mortgage has a multiplicity of owners. It may well be impossible to get them all to agree to a downgrading.
It is time for the government to take a straightforward step: Enter into agreement with each distressed homeowner to replace the current mortgage with a Shared Appreciation Mortgage with the same terms (dollar amount, interest rate, payment terms, etc). The homeowner will pay what he or she can, the government will pick up the rest of the mortgage bill. Over time, both homeowner and government will build up equity in the home and will share in any gains when the house is eventually sold.
This is a win-win-win-win: for government which will finally be seen as doing something for ordinary people, for investors whose income stream is maintained, for homeowners who can stay in their houses, and for their communities which no longer face the blight of foreclosures.
Let's do it now!
Sent to New York Times
Bankers have already demonstrated that they have no shame, so such pressure is futile. There are also structural impediments to companies being able to do what the government wants. The mortgage servicers have a fiduciary duty to the mortgage holders and would have to get their permission for any downgrading. As each mortgage has been diced and shredded into multiple derivative products, each mortgage has a multiplicity of owners. It may well be impossible to get them all to agree to a downgrading.
It is time for the government to take a straightforward step: Enter into agreement with each distressed homeowner to replace the current mortgage with a Shared Appreciation Mortgage with the same terms (dollar amount, interest rate, payment terms, etc). The homeowner will pay what he or she can, the government will pick up the rest of the mortgage bill. Over time, both homeowner and government will build up equity in the home and will share in any gains when the house is eventually sold.
This is a win-win-win-win: for government which will finally be seen as doing something for ordinary people, for investors whose income stream is maintained, for homeowners who can stay in their houses, and for their communities which no longer face the blight of foreclosures.
Let's do it now!
Sent to New York Times
Albany Idles as State Nears Its Last Dollar
Albany is not alone. In States across the nation from California to Massachusetts, state revenues are dropping and state expenses for social services are rising (Albany Idles As State Nears Its Last Dollar, New York Times, November 27, 2009: A1, A27).
What we need is another federal stimulus. This should have two major thrusts. First each State should receive funding equivalent to about 20% of its 2007 budget. This would enable states to meet their responsibilities with minimal cuts in vital social programs and would also enable them to maintain state aid to the cities and towns in their jurisdictions.
The second thrust would be to help homeowners. Current efforts to avert foreclosures are not working. A powerful alternative would be for the Federal Government to partner with distressed homeowners by entering in to a Shared Appreciation Mortgage with the homeowner. The homeowner would pay what she/he could; the government would pick up the rest. Both homeowner and government would, over time, build up equity in the property and share, in proportion to their contributions, when the housed was sold. That would be a win-win-win: for the government as it would underpin the mortgage derivative market; for the homeowners as they could stay in their houses; for communities as the blight of foreclosure would recede.
Sent to New York Times
What we need is another federal stimulus. This should have two major thrusts. First each State should receive funding equivalent to about 20% of its 2007 budget. This would enable states to meet their responsibilities with minimal cuts in vital social programs and would also enable them to maintain state aid to the cities and towns in their jurisdictions.
The second thrust would be to help homeowners. Current efforts to avert foreclosures are not working. A powerful alternative would be for the Federal Government to partner with distressed homeowners by entering in to a Shared Appreciation Mortgage with the homeowner. The homeowner would pay what she/he could; the government would pick up the rest. Both homeowner and government would, over time, build up equity in the property and share, in proportion to their contributions, when the housed was sold. That would be a win-win-win: for the government as it would underpin the mortgage derivative market; for the homeowners as they could stay in their houses; for communities as the blight of foreclosure would recede.
Sent to New York Times
Monday, November 30, 2009
Visceral has its Value
I must strongly protest Maureen Dowd's advice to the President (Visceral Has Its Value, New York Times Week in Review, November 22, 2009: 11). The suggests that the President tell his general(s) "Your pie holes you will shut, or rise higher you will not."
That, essentially was what President Bush told the top echelons of the military when General Shinseki was sidelined when he spoke the truth about the number of boots on the ground needed to pacify Iraq.
We need Generals, Administrators, and lawyers who will speak truth to power. Without them, as was very much the case during the Bush Presidency, we are lost.
Democracies thrive on informed debate.
Sent to New York Times
That, essentially was what President Bush told the top echelons of the military when General Shinseki was sidelined when he spoke the truth about the number of boots on the ground needed to pacify Iraq.
We need Generals, Administrators, and lawyers who will speak truth to power. Without them, as was very much the case during the Bush Presidency, we are lost.
Democracies thrive on informed debate.
Sent to New York Times
Monday, November 23, 2009
Adding insult to infamy
It is absurd that the families of those killed in the Beirut bombings of 1983 are still waiting for restitution.
There is a simple remedy. If the US government wishes to avoid upsetting delicate negotiations between itself and a foreign government, then it should pay the costs incurred by that government through judicial decisions.
It is unconscionable that this cost is being born by the families who lost loved ones 26 years ago.
There is a simple remedy. If the US government wishes to avoid upsetting delicate negotiations between itself and a foreign government, then it should pay the costs incurred by that government through judicial decisions.
It is unconscionable that this cost is being born by the families who lost loved ones 26 years ago.
Finance: Softer Approach, NYT 11.13.2009: B2
Mr Feineberg seems to be living in the same dream world as Wall Street Executives (Finance: Softer Approach, New York Times, November 13, 2009: B2).
He is arguing that pay cuts would make it difficult for Wall Street firms to retain talent. He seems unaware that there is an enormous pool of talent in the job market with similar skills, alumni of Bear Stearns and Lehman, who would be delighted to fill the shoes of any executive foolish enough to depart his or her current job.
We, as shareholders and owners of these companies, must keep up the pressure against excessive compensation.
Sent to New York Times
He is arguing that pay cuts would make it difficult for Wall Street firms to retain talent. He seems unaware that there is an enormous pool of talent in the job market with similar skills, alumni of Bear Stearns and Lehman, who would be delighted to fill the shoes of any executive foolish enough to depart his or her current job.
We, as shareholders and owners of these companies, must keep up the pressure against excessive compensation.
Sent to New York Times
Job Market in Finance
Mr Fineman seems to be living in the same dream world as Wall Street Executives (Finance: Softer Aproach, New York Times, November 13, 2009: B2).
He is arguing that pay cuts would make it difficult for Wall Street firms to retain talent. He seems unaware that there is an enormous pool of talent in the job market with similar skills, alumni of Bear Stearns and Lehman, who would be delighted to fill the shoes of any executive foolish enough to depart his or her current job.
We, as shareholders and owners of these companies, must keep up the pressure against excessive compensation.
Sent to New York Times
He is arguing that pay cuts would make it difficult for Wall Street firms to retain talent. He seems unaware that there is an enormous pool of talent in the job market with similar skills, alumni of Bear Stearns and Lehman, who would be delighted to fill the shoes of any executive foolish enough to depart his or her current job.
We, as shareholders and owners of these companies, must keep up the pressure against excessive compensation.
Sent to New York Times
Wednesday, November 18, 2009
Sunday, November 15, 2009
Obama Meets his Anzio
Paul Krugman (New York Times, Oct. 6, 2009) claims that progressives have lost faith in the President because of his soft treatment of Wall Street.
Alas, the betrayal is much more profound and includes his endorsement of the outrageous States Secrets privilege, the failure to bring the innocent Uighurs to the United States as refugees, and his failure to prosecute those responsible for the torture memorandums.
He might not have succeeded, but at least he could have fought for each of these.
Sent to New York Times
Alas, the betrayal is much more profound and includes his endorsement of the outrageous States Secrets privilege, the failure to bring the innocent Uighurs to the United States as refugees, and his failure to prosecute those responsible for the torture memorandums.
He might not have succeeded, but at least he could have fought for each of these.
Sent to New York Times
The Fleet is in
It seems that the Times is in the business of exploiting labor.
In the advertisement, The Fleet Is In (November 5, 2009: C1), the New York Times store boasts that each of the hand made ship models featured takes more than 100 hours to craft.
The average price of these models is about $540 which means that if all the money went to the craftsmen, they would be making under $6.00 per hour. But, if, as I was once taught, "Materials is half your business," then they are receiving under $3.00 an hour and this still leaves nothing for shipping or profit.
The Times is always extolling fair trade; does it (or the New York Times Store) practice it?
Sent to the New York Times
In the advertisement, The Fleet Is In (November 5, 2009: C1), the New York Times store boasts that each of the hand made ship models featured takes more than 100 hours to craft.
The average price of these models is about $540 which means that if all the money went to the craftsmen, they would be making under $6.00 per hour. But, if, as I was once taught, "Materials is half your business," then they are receiving under $3.00 an hour and this still leaves nothing for shipping or profit.
The Times is always extolling fair trade; does it (or the New York Times Store) practice it?
Sent to the New York Times
For University Presidents, a pay cut is in order
If I were a University President responding to the Globe's admonition (November 5, 2009:A16) to take a pay cut, I would say, "I will be the first to take a cut once those Finance Professors in the Business School take a cut. They, after all, either devised the derivatives that sank the economy, or trained the people that did. The Finance Professors need to give back in a big way."
I am waiting to see if they do.
Sent to Boston Globe
I am waiting to see if they do.
Sent to Boston Globe
Tuesday, November 3, 2009
The gaggle of economic sociopaths
I am the last person to defend the behavior of the Wall Street tycoons who brought down the economy by their actions over the past eight years, but we were ill served by the publication of Neal Gabler's rant about the “economic sociopaths” of Wall Street (Boston Globe, October 31, 2009: A11).
The diagnosis of a psychiatric condition (like those articulated in DSM-IV-R) should be done on an individual basis by a highly trained specialist. Such diagnoses should not be applied in a broad brush way to any subpopulation, even Wall Streeters deserve that amount of restraint. Though the phrase is an appealing metaphor.
Furthermore, there is in psychology an ongoing argument about whether behavior is driven by person or by situation. Situations, it is argued, call forth relevant behaviors. One could argue that over the past eight years, we ,through our government, created the situation in which this irresponsible behavior was appropriate. We cut taxes, we repealed Glass-Steagall, we neglected regulation, and we glorified winners. We got the behaviors that might have been expected.
On one point I agree with Mr Gabler. It is a great shame that President Obama appointed two men who facilitated those situational changes, Mr. Geithner and Mr. Summers, to be major figures on the team trying to undo those disastrous changes in the situation.
Sent to Boston Globe
The diagnosis of a psychiatric condition (like those articulated in DSM-IV-R) should be done on an individual basis by a highly trained specialist. Such diagnoses should not be applied in a broad brush way to any subpopulation, even Wall Streeters deserve that amount of restraint. Though the phrase is an appealing metaphor.
Furthermore, there is in psychology an ongoing argument about whether behavior is driven by person or by situation. Situations, it is argued, call forth relevant behaviors. One could argue that over the past eight years, we ,through our government, created the situation in which this irresponsible behavior was appropriate. We cut taxes, we repealed Glass-Steagall, we neglected regulation, and we glorified winners. We got the behaviors that might have been expected.
On one point I agree with Mr Gabler. It is a great shame that President Obama appointed two men who facilitated those situational changes, Mr. Geithner and Mr. Summers, to be major figures on the team trying to undo those disastrous changes in the situation.
Sent to Boston Globe
Allston shoudn't suffer on Harvard's account
Your advice to Harvard points out the wrong strategy (Allston shouldn't suffer on Harvard's account, Boston Globe, October 28, 2009: A14).
What Harvard should do is go full steam ahead on the Science Campus Development even if it means dipping into the endowment. This is exactly the time to do so.
Money can be borrowed at reasonable rates and Harvard has impeccable collateral. It can buy more construction for the dollar in a recession. Stopping and restarting projects are more expensive than continuing on.
Finally, counter-cyclical spending of this magnitude will give a big boost to the city, region, and state economies.
Be a better citizen, Harvard.
Sent to Boston Globe
What Harvard should do is go full steam ahead on the Science Campus Development even if it means dipping into the endowment. This is exactly the time to do so.
Money can be borrowed at reasonable rates and Harvard has impeccable collateral. It can buy more construction for the dollar in a recession. Stopping and restarting projects are more expensive than continuing on.
Finally, counter-cyclical spending of this magnitude will give a big boost to the city, region, and state economies.
Be a better citizen, Harvard.
Sent to Boston Globe
Allston shoudn't suffer on Harvard's account
Your advice to Harvard points out the wrong strategy (Allston shouldn't suffer on Harvard's account, Boston Globe, October 28, 2009: A14).
What Harvard should do is go full steam ahead on the Science Campus Development even if it means dipping into the endowment. This is exactly the time to do so.
Money can be borrowed at reasonable rates and Harvard has impeccable collateral. It can buy more construction for the dollar in a recession. Stopping and restarting projects are more expensive than continuing on.
Finally, counter-cyclical spending of this magnitude will give a big boost to the city, region, and state economies.
Be a better citizen, Harvard.
What Harvard should do is go full steam ahead on the Science Campus Development even if it means dipping into the endowment. This is exactly the time to do so.
Money can be borrowed at reasonable rates and Harvard has impeccable collateral. It can buy more construction for the dollar in a recession. Stopping and restarting projects are more expensive than continuing on.
Finally, counter-cyclical spending of this magnitude will give a big boost to the city, region, and state economies.
Be a better citizen, Harvard.
Afghanistan
Your two op-eds today ([Victor Sebestyen] Transcripts of Defeat & [Nicholas Kristof] More Schools, Not Troops, New York Times, October 29, 2009: A23) provide forceful counter-aguments to that of Max Boot a few days ago (Max Boot, There's No Substitute for Troops on the Ground, New York Times, October 22, 2009).
It is clear that we do not have the stomach to put the necessary force on the ground. With 110,000 troops, the Russians were unsuccessful in "pacifying" Afghanistan. Counter insurgency experts estimate that 390,000 troops would be required (that's the Petraeus doctrine, not mine) to be successful.
Even that may be too optimistic. There are 780 cities, towns and villages in Afghanistan. Max Boot tells us that to hold the town of Nawa took 1000 marines carrying out a clear and hold policy. To succeed in them all would require 780,000 troops
Do we and NATO have enough troops? Are we prepared for the kind of casualties that would be incurred? I think not.
The time has come to try the Kristoff strategy: saturate the land with schools: Cost effective, less dangerous, and with a long term payoff. If we go the escalation route, we need to be sure that we can win, before we commit more troops and we will probably have to commit many more than are presently contemplated.
Sent to New York Times
It is clear that we do not have the stomach to put the necessary force on the ground. With 110,000 troops, the Russians were unsuccessful in "pacifying" Afghanistan. Counter insurgency experts estimate that 390,000 troops would be required (that's the Petraeus doctrine, not mine) to be successful.
Even that may be too optimistic. There are 780 cities, towns and villages in Afghanistan. Max Boot tells us that to hold the town of Nawa took 1000 marines carrying out a clear and hold policy. To succeed in them all would require 780,000 troops
Do we and NATO have enough troops? Are we prepared for the kind of casualties that would be incurred? I think not.
The time has come to try the Kristoff strategy: saturate the land with schools: Cost effective, less dangerous, and with a long term payoff. If we go the escalation route, we need to be sure that we can win, before we commit more troops and we will probably have to commit many more than are presently contemplated.
Sent to New York Times
Saturday, October 31, 2009
Seeking the Home-Field Advantage in the Public Option
The trigger suggestion is insane (Seeking the Home-Field Advantage in the Public Option, New York Times, October 23, 2009).
For nearly forty years, the Health Insurance industry has opposed improving coverage. They now claim that they can control costs and provide universal coverage. They are not to be believed.
Only a competing public option system will do. The call for a trigger is absurd. If the industry had the will it could have done what it proposes sometime in the past forty years. It has not, giving them a few more years would be an unreasonable waste of time during which many would remain uninsured.
The idea of small cooperatives is also un-workable. That is the same formula that the industry imposed with the Medicare drug plan -- small cooperatives can bargain with the drug cartels (I mean the pharmaceutical companies) but the government cannot bring its massive purchasing power to bear. That plan has no hope of cost reduction.
The President must stand firm on the need for a public option and Congress must vote for a public competitor to be in the mix.
I would prefer to see a single payer plan in place. The most compelling reason for moving quickly to a form of single-payer health insurance is the advancement of science.
Once genetic screening techniques are perfected, so that each individual's propensity for each and every disease is known from an early age, the only form of health insurance that makes sense will be the single-payer form. The private health insurance industry will go the way of the dodo, as no responsible U.S. Government will allow an unregulated market in which Insurance Companies can cherry pick for coverage those with a low propensity to get sick while excluding those from coverage who are likely to do so.
Sent to the New York Times
For nearly forty years, the Health Insurance industry has opposed improving coverage. They now claim that they can control costs and provide universal coverage. They are not to be believed.
Only a competing public option system will do. The call for a trigger is absurd. If the industry had the will it could have done what it proposes sometime in the past forty years. It has not, giving them a few more years would be an unreasonable waste of time during which many would remain uninsured.
The idea of small cooperatives is also un-workable. That is the same formula that the industry imposed with the Medicare drug plan -- small cooperatives can bargain with the drug cartels (I mean the pharmaceutical companies) but the government cannot bring its massive purchasing power to bear. That plan has no hope of cost reduction.
The President must stand firm on the need for a public option and Congress must vote for a public competitor to be in the mix.
I would prefer to see a single payer plan in place. The most compelling reason for moving quickly to a form of single-payer health insurance is the advancement of science.
Once genetic screening techniques are perfected, so that each individual's propensity for each and every disease is known from an early age, the only form of health insurance that makes sense will be the single-payer form. The private health insurance industry will go the way of the dodo, as no responsible U.S. Government will allow an unregulated market in which Insurance Companies can cherry pick for coverage those with a low propensity to get sick while excluding those from coverage who are likely to do so.
Sent to the New York Times
There's No Substitute for Troops on the Ground
Thee may be no substitute for troops on the ground (Max Boot, There's No Substitute for Troops on the Ground, New York Times, October 22, 2009), but do we and NATO have enough troops? He points to the town of Nawa where 1000 marines have carried out a clear and hold policy. About 400 Afghan troops assist them.
However there are 780 cities, towns and villages in Afghanistan. Do we have 780,000 troops to send east to hold and clear all those cities, towns and villages? I think not.
Could we be more optimistic and argue that when half the cities, towns, and villages were secure and flourishing, then a tipping point would be reached and that the Taliban and Al-Qaeda would acknowledge defeat? That would take some 390,000 troops, a far cry from what is proposed; but those are the kinds of numbers that counter-insurgency experts think necessary.
We need to be sure that we can win, before we commit more troops.
Sent to the New York Times
However there are 780 cities, towns and villages in Afghanistan. Do we have 780,000 troops to send east to hold and clear all those cities, towns and villages? I think not.
Could we be more optimistic and argue that when half the cities, towns, and villages were secure and flourishing, then a tipping point would be reached and that the Taliban and Al-Qaeda would acknowledge defeat? That would take some 390,000 troops, a far cry from what is proposed; but those are the kinds of numbers that counter-insurgency experts think necessary.
We need to be sure that we can win, before we commit more troops.
Sent to the New York Times
The New Untouchables
While I agree with Thomas L. Friedman that education must be the driver of our economic recovery, there is something missing in his analysis of the American decline (New York Times, October 21, 2009: A29).
He quotes approvingly Todd Martin's analysis of the loss of competitiveness. However, from 1980 to 2006, productivity rose at a rate of 2.2% per year. That is it was over 75% higher in 2006 than in 1980. On the other hand, real wages only increased 39% and from 1993 to 2006 only increased by 16%.
The fruits of increased productivity were not captured by employees but went to managers and shareholders. Clearly young people observing this stagnation in wage levels might well become unmotivated to take on the tough educational experiences that we all agree are necessary in our society today.
Sent to New York Times
--
He quotes approvingly Todd Martin's analysis of the loss of competitiveness. However, from 1980 to 2006, productivity rose at a rate of 2.2% per year. That is it was over 75% higher in 2006 than in 1980. On the other hand, real wages only increased 39% and from 1993 to 2006 only increased by 16%.
The fruits of increased productivity were not captured by employees but went to managers and shareholders. Clearly young people observing this stagnation in wage levels might well become unmotivated to take on the tough educational experiences that we all agree are necessary in our society today.
Sent to New York Times
--
Wednesday, October 21, 2009
The Pay Problem
The current compensation system in organizations is broken (The Pay Problem, David Owen, New Yorker, October 12, 2009). One solution to excessive executive compensation is to take seriously the fact that a corporation's success is contributed to by every member of the organization from the janitor -- if that role has not been outsourced -- to the research scientist at the bench, to the middle managers, up to the CEO.
Yes, each makes a differential contribution. Let this be reflected in their base salaries. But when it comes to bonuses based on the firm's performance, let each share the same percentage. In dollar terms, the differential will be there, but each will be rewarded for the firm's success.
I doubt that this can be sanctioned by law, but it seems like a good norm for companies, their compensation committees, and their shareholders to adopt.
Sent to the New Yorker
Yes, each makes a differential contribution. Let this be reflected in their base salaries. But when it comes to bonuses based on the firm's performance, let each share the same percentage. In dollar terms, the differential will be there, but each will be rewarded for the firm's success.
I doubt that this can be sanctioned by law, but it seems like a good norm for companies, their compensation committees, and their shareholders to adopt.
Sent to the New Yorker
Any Bonds Today
How much better off the country would be today if we had adopted similar efforts to pay for our wars in Iraq and Afghanistan (Any Bonds Today, New York Times, October 10, 2009:A18).
By my calculations (sent to every US Senator in 2004, finally published in March 2008) a combination of a tax surcharge of 5% and a progressive forced savings regime (postwar credits: 2% for those with incomes between $50,000 and $100,000) with progressively high percentages until a millionaire was paying $16% on the amount of income over $1 million) would have paid for a large fraction of the war and kept our debt within manageable limits.
Had these suggestions been followed, we would have a much easier time now in combating the current employment depression.
ps link to publication: http://www.projo.com/opinion/contributors/content/CT_evans3_03-03-08_ON92A0P_v19.39c50b8.html
(and yes I did send it to your op-ed page which showed no interest.)
Sent to New York Times
By my calculations (sent to every US Senator in 2004, finally published in March 2008) a combination of a tax surcharge of 5% and a progressive forced savings regime (postwar credits: 2% for those with incomes between $50,000 and $100,000) with progressively high percentages until a millionaire was paying $16% on the amount of income over $1 million) would have paid for a large fraction of the war and kept our debt within manageable limits.
Had these suggestions been followed, we would have a much easier time now in combating the current employment depression.
ps link to publication: http://www.projo.com/opinion/contributors/content/CT_evans3_03-03-08_ON92A0P_v19.39c50b8.html
(and yes I did send it to your op-ed page which showed no interest.)
Sent to New York Times
Monday, October 12, 2009
Friday, October 9, 2009
Healthy Banks Could Assume a Bailout Role
It would be funny if it weren't so tragic.
Because Sheila Bair and Timothy Geithner are acting like spoiled kindergarten kids, the Federal government has to borrow from banks at an expensive rate of interest rather than from the Treasury (Healthy Banks Could Assume a Bailout Role, New York Times, September 21, 2009: A1, 14).
When I was in graduate school over 40 years ago, one of my mentors, Chris Argyris, used to research interpersonal competence. It is a pity that the lessons learned have not survived those forty years. Bair and Geithner sure need training in that domain. The costs would be minuscule compared to the increased interest costs due to bank borrowing.
Sent to New York Times
--
Because Sheila Bair and Timothy Geithner are acting like spoiled kindergarten kids, the Federal government has to borrow from banks at an expensive rate of interest rather than from the Treasury (Healthy Banks Could Assume a Bailout Role, New York Times, September 21, 2009: A1, 14).
When I was in graduate school over 40 years ago, one of my mentors, Chris Argyris, used to research interpersonal competence. It is a pity that the lessons learned have not survived those forty years. Bair and Geithner sure need training in that domain. The costs would be minuscule compared to the increased interest costs due to bank borrowing.
Sent to New York Times
--
But Who is Watching the Regulators
I do not think we can put much faith in any regulatory scheme until the two top officials who facilitated or oversaw loose regulation or deregulation are removed from office: Secretary Geithner and Presidential Adviser Summers.
They are poster children for the escalation of a losing course of action.
Sent to the New York Times
They are poster children for the escalation of a losing course of action.
Sent to the New York Times
Accountants Mislead Us into Crisis
We must not allow bankers, their lobbyists, or their accountants to lull us into a false sense of security again (Accountants Misled Us Into Crisis, New York Times, September 11, 2009: B1, B4).
First of all, all 'off the books' liabilities should be banned. We need to know the true state of a company's assets and liabilities. Second we should not be seduced by pleas that some assets should be priced at their expected value rather than at market price because "the bank does not intend to sell them." The bank's intentions are irrelevant, what the investor needs to know is what those investments would fetch in the market if there were a sudden calling in of debts -- something that happened just last year.
The FASB should stand firm, the politicians should push back against the lobbyists who are trying to prevent reform. It is after all in the best interests of the banks that they have sufficient reserves against all their debts as I do not think any government will dare to bail them out ever again after they have flaunted their arrogant bonuses in the faces of the people.
Sent to New York Times
First of all, all 'off the books' liabilities should be banned. We need to know the true state of a company's assets and liabilities. Second we should not be seduced by pleas that some assets should be priced at their expected value rather than at market price because "the bank does not intend to sell them." The bank's intentions are irrelevant, what the investor needs to know is what those investments would fetch in the market if there were a sudden calling in of debts -- something that happened just last year.
The FASB should stand firm, the politicians should push back against the lobbyists who are trying to prevent reform. It is after all in the best interests of the banks that they have sufficient reserves against all their debts as I do not think any government will dare to bail them out ever again after they have flaunted their arrogant bonuses in the faces of the people.
Sent to New York Times
A Dream Interrupted at Boeing
One of the earliest lessons we teach at the Business School is the importance of coordination. For any complex endeavor to be successfully mounted, the interdependencies between the various stages of the project have to be carefully managed.
In our writings on downsizing, my colleagues Hugh Gunz and Michael Jalland, have emphasized that when an activity is outsourced, more managerial time and talent is required to manage the interface than was required when the activity was in-house.
Boeing (A Dream Interrupted at Boeing, New York Times Sunday Business, September 6, 2009: 1,4) seems to have forgotten this important lesson and are now bearing the costs of that failure.
Sent to the New York Times
In our writings on downsizing, my colleagues Hugh Gunz and Michael Jalland, have emphasized that when an activity is outsourced, more managerial time and talent is required to manage the interface than was required when the activity was in-house.
Boeing (A Dream Interrupted at Boeing, New York Times Sunday Business, September 6, 2009: 1,4) seems to have forgotten this important lesson and are now bearing the costs of that failure.
Sent to the New York Times
Monday, October 5, 2009
Monday, September 21, 2009
Hyatt's Risky Gamble
I am appalled by the duplicity of Hyatt's management. No company that treats workers well lies about the people they are training.
There is also a business case not to outsource your key staff. I point this out in my Cambridge Chronicle op-ed.
There is also a business case not to outsource your key staff. I point this out in my Cambridge Chronicle op-ed.
Wednesday, September 9, 2009
Respect Your Children
The political center must have moved very far to the right if your editorial writer believes that socialism has an "evil history" (Respect your children, New York Times, September 5, 2009: A14).
The history of socialism is found in the history of the Nordic states, in post World War II Britain, and in many parts of Europe today. Nothing evil there.
Sent to New York Times
Another letter published made the same point.
The history of socialism is found in the history of the Nordic states, in post World War II Britain, and in many parts of Europe today. Nothing evil there.
Sent to New York Times
Another letter published made the same point.
Inquiry Stokes Unease Over Trading Firms That Shape Market
In your discussion about high speed computer trading you stated, "The Securities and Exchange Commission has opened up an investigation into high-speed-trading practices, in particular the ability of some of the most powerful computers to jump to the head of the trading queue and -- in a fraction of a millisecond -- capture the evanescent trading spread before the rest of the market does" (Inquiry Stokes Unease Over Trading Firms That Shape Markets, New York Times, September 3, 2009: A1, A6).
We do we need an inquiry? The SEC needs to act. Even a millisecond advantage is front running. It is not clear whether or not this type of front running is illegal. If it is then practitioners should be prosecuted; if it is not then the practice should be banned.
I wonder how much of the recently declared profits in the financial services industry were based upon this practice.
Sent to New York Times
We do we need an inquiry? The SEC needs to act. Even a millisecond advantage is front running. It is not clear whether or not this type of front running is illegal. If it is then practitioners should be prosecuted; if it is not then the practice should be banned.
I wonder how much of the recently declared profits in the financial services industry were based upon this practice.
Sent to New York Times
Friday, September 4, 2009
The Obama Slide
I hope that in his next column, David Brooks will tell us how to deal with the paradox expressed in the penultimate sentence of his column (The Obama Slide, New York Times, September 1, 2009: A25). Mr. Brooks states, "... he needs to align his proposals to the values of the political center: fiscal responsibility, individual choice and decentralized authority."
The last eight years are a memorial to the benefits of individual choice accomplished through massive deregulation or failed regulation. During that time, we did not see much in the way of fiscal responsibility. Governments, corporations (especially banks and near banks), and individuals all engaged in massive deficit spending or irresponsible risk taking.
What policies does Mr. Brooks advocate that would allow freedom but curb those excesses that have brought the economy down?
Sent to the New York Times
The last eight years are a memorial to the benefits of individual choice accomplished through massive deregulation or failed regulation. During that time, we did not see much in the way of fiscal responsibility. Governments, corporations (especially banks and near banks), and individuals all engaged in massive deficit spending or irresponsible risk taking.
What policies does Mr. Brooks advocate that would allow freedom but curb those excesses that have brought the economy down?
Sent to the New York Times
Wednesday, September 2, 2009
The Foreclosure Crisis
James Surowiecki outlines several alternatives to dealing with the foreclosure crisis except one: the Shared Appreciation Mortgage (Not Home Yet, New Yorker, August 10/17, 2009: 25). Instead of throwing money at people or at mortgage servicers, the government should enter into sharing the cost of the mortgage with the distressed homeowner. Homeowners pay what they can, the government picks up the rest. When the house is eventually sold, homeowner and government share the proceeds in proportion to their contributions.
It is simple, there is no need to involve mortgage servicers and the mortgage is not written down.
The only risk is that the price of the house will remain under water; but in such cases the sharing could continue with the next owner.
Sent to New Yorker
It is simple, there is no need to involve mortgage servicers and the mortgage is not written down.
The only risk is that the price of the house will remain under water; but in such cases the sharing could continue with the next owner.
Sent to New Yorker
Appointments Lacking
As a former community organizer, I would have thought that President Obama would have been keenly aware of the importance of organization (Obama Team Lacking Most of Top Players, New York Times, August 24, 2009: A1, A12). Without having your political supporters in place throughout the agencies, it is very hard to get your policies translated down the hierarchy into operational goals and into action.
Unless appointees committed to your agenda are in place, the culture of each government department will continue to be that of his predecessor. This is not a happy situation for the President or the nation.
I think this lack of successful placements has much to do with the lassitude that Paul Krugman complains about in his column (All the President's Zombies, New York Times, August 24, 2009: A7). Though I must add that choosing the very people who were instrumental in dismantling the New Deal banking restrictions to senior economic positions almost guarantees a continuing commitment to that losing course of action. There is lots of social science research to demonstrate that. The President should bring in new brooms there as soon as possible.
Sent to New York Times
Unless appointees committed to your agenda are in place, the culture of each government department will continue to be that of his predecessor. This is not a happy situation for the President or the nation.
I think this lack of successful placements has much to do with the lassitude that Paul Krugman complains about in his column (All the President's Zombies, New York Times, August 24, 2009: A7). Though I must add that choosing the very people who were instrumental in dismantling the New Deal banking restrictions to senior economic positions almost guarantees a continuing commitment to that losing course of action. There is lots of social science research to demonstrate that. The President should bring in new brooms there as soon as possible.
Sent to New York Times
A Chance to Return the Favor
A brilliant idea (New York Times, August 12, 2009).
But so naive.
Sent to New York Times
But so naive.
Sent to New York Times
Monday, August 31, 2009
Saturday, August 22, 2009
Don't let Senate seat be vacant
I must take issue with your editorial advocating that the legislature accede to Senator Kennedy's request to allow the Governor to appoint an interim Senator until the special election has taken place if Senator Kennedy should retire (Don't let senate seat be vacant, Boston Globe, August 21, 2009).
In itself, it may not be a bad idea, but legislative changes of this type (including the original bill that stripped the Governor of the right to appoint a replacement) should only come into force after the next election cycle. That is, present incumbents cannot be allowed to benefit from these changes.
Too often in America, politicians (e.g. Bloomberg in New York, Democrats in New Jersey, Republicans in Texas) change the rules in mid stream so that they can benefit. This should not be acceptable.
Maybe we could get an independent redistricting commission too.
Sent to Boston Globe
In itself, it may not be a bad idea, but legislative changes of this type (including the original bill that stripped the Governor of the right to appoint a replacement) should only come into force after the next election cycle. That is, present incumbents cannot be allowed to benefit from these changes.
Too often in America, politicians (e.g. Bloomberg in New York, Democrats in New Jersey, Republicans in Texas) change the rules in mid stream so that they can benefit. This should not be acceptable.
Maybe we could get an independent redistricting commission too.
Sent to Boston Globe
Friday, August 14, 2009
Assessing the Delphi Method
Published in The Psychologist, August 2009 Vol 22(8), page 654.
While I enjoyed the description of the Delphi technique by Susanne Iqbal and Laura Pipon-Young (The Psychologist, July 2009) I missed any detailed evaluation of its accuracy.
I noticed that they cited the Haggard and Haste 1986 piece forecasting the state of psychology in 2010. I would think an evaluation of the accuracy of that forecast a year early might have been
appropriate.
I also recall participating in a similar exercise (alas I forget the name of the principal
investigator) run by the BPS in 1971 or 1972 when I was at the London Business School.
How well did that forecasting exercise turn out?
Martin G. Evans
Cambridge, MA, USA
Editor’s note: We are indeed hoping to publish a follow up next year! The other exercise
was a 30-year delphi published by J.M. Smith in the Bulletin in 1975, so it might be one to
return to in 2035.
While I enjoyed the description of the Delphi technique by Susanne Iqbal and Laura Pipon-Young (The Psychologist, July 2009) I missed any detailed evaluation of its accuracy.
I noticed that they cited the Haggard and Haste 1986 piece forecasting the state of psychology in 2010. I would think an evaluation of the accuracy of that forecast a year early might have been
appropriate.
I also recall participating in a similar exercise (alas I forget the name of the principal
investigator) run by the BPS in 1971 or 1972 when I was at the London Business School.
How well did that forecasting exercise turn out?
Martin G. Evans
Cambridge, MA, USA
Editor’s note: We are indeed hoping to publish a follow up next year! The other exercise
was a 30-year delphi published by J.M. Smith in the Bulletin in 1975, so it might be one to
return to in 2035.
Thursday, August 13, 2009
States in Distress
Your editorial today misses the major economic point about the stimulus (New York Times, August 4, 2009: A18). It is supposed to compensate for the loss in aggregate demand due to consumers leaving the marketplace. As you say, much of the stimulus money is being used by states to reduce the amount they have to slash in terms of employment or services.
That is good as it prevents things from getting worse in terms of aggregate demand, but it does nothing to replace the reduction in demand due to individuals failing to make purchases of goods and services.
In addition to the current stimulus, we need direct aid to states so they will not continue to slash and burn. And, despite the political unpalatability, we need it now.
Sent to New York Times
That is good as it prevents things from getting worse in terms of aggregate demand, but it does nothing to replace the reduction in demand due to individuals failing to make purchases of goods and services.
In addition to the current stimulus, we need direct aid to states so they will not continue to slash and burn. And, despite the political unpalatability, we need it now.
Sent to New York Times
Monday, August 3, 2009
Bankers Reaped Lavish Bonuses During Bailouts
So while the Bank of America was in the process of laying off 30,000 employees, borrowing $35 billion dollars from the taxpayers (still not paid back), it was also paying out $3.3 billion dollars in bonuses to the very people that led it into financial disaster (Bankers Reaped Lavish Bonuses During Bailouts, New York Times, July 31, 2009: A1).
That is unconscionable.
If each of those about-to-be-laid-off employees had been earning $100,000 per year, these bonuses would have kept all, yes all, of them in employment.
How top management and the board of directors could make that trade-off, I will never understand.
Sent to New York Times
That is unconscionable.
If each of those about-to-be-laid-off employees had been earning $100,000 per year, these bonuses would have kept all, yes all, of them in employment.
How top management and the board of directors could make that trade-off, I will never understand.
Sent to New York Times
Military Criticized in Report of Soldier Electrocuted in Iraq
In your report on the tragic electrocution of a showering serviceman in Iraq (Military Criticized in Report of Soldier Electrocuted in Iraq, New York Times, July 28, 2009: A8), you report this comment from KBR's spokeswoman: "... the company maintains that it is not responsible. She said that KBR had informed the military of the absence of [electrical] grounding ... nine months before [the] death" and that the military did not instruct KBR to upgrade the facility.
If KBR had any pride in its workmanship, it would not instruct a spokeswoman to make this kind of comment. What kind of contractor would deliberately allow its own shoddy work to remain uncorrected until, as she put it, "that incident" occurred.
Yes, there is blame too for the army's inaction, but KBR must be held accountable for its mistakes.
Sent to New York Times
If KBR had any pride in its workmanship, it would not instruct a spokeswoman to make this kind of comment. What kind of contractor would deliberately allow its own shoddy work to remain uncorrected until, as she put it, "that incident" occurred.
Yes, there is blame too for the army's inaction, but KBR must be held accountable for its mistakes.
Sent to New York Times
With Big Profit, Goldman sees Big Payday Ahead
Let us put these enormous bank profits in context (July 27, 2009). Last week Goldman Sacks reported a quarterly profit of $3.44 billion dollars. However, Goldman received full compensation ($13.0b)for its claims on AIG when other companies with similar claims were getting fifty cents or less on the dollar. AIG got the money to pay Goldman from us, the taxpayers. Without that, Goldman would have been billions of dollars in the red.
Those gross profits were earned by us, not by the clever trading strategies of the Goldman staffers. If anyone is to be rewarded, it should be the taxpayers for we made a bet that Goldman would be successful; shouldn't we share in the rewards.
Sent to New York Times
Those gross profits were earned by us, not by the clever trading strategies of the Goldman staffers. If anyone is to be rewarded, it should be the taxpayers for we made a bet that Goldman would be successful; shouldn't we share in the rewards.
Sent to New York Times
Thursday, July 30, 2009
What You Might Not Know About the Recovery
Mr. Biden's recent travels seem to have left him out of touch with what is going on in the States across our country (What You Might Not Know About the Recovery, New York Times, July 28, 2009).
From California to Maine, States are cutting into vital services in order to balance their budgets as they are constitutionally required to do. Mr Biden is correct that stimulus money is going to the states, but it is insufficient to stem the hemorrhaging due to massive declines in state income due to loss of capital gains taxes, and sales and income taxes. Worse still, states are cutting aid to local municipalities; these in turn have to make further cuts in their services.
We need another stimulus directed aat the states. About 20% of each states 2007-2008 budget would be enough to make state finances whole. If we do not do this, Federal and State governments will be working at cross purposes and the present stimulus funds will be all but wasted.
Yes, more stimulus means more debt, but when the economy recovers, this can be paid off if wise fiscal policies are followed.
Sent to New York Times
From California to Maine, States are cutting into vital services in order to balance their budgets as they are constitutionally required to do. Mr Biden is correct that stimulus money is going to the states, but it is insufficient to stem the hemorrhaging due to massive declines in state income due to loss of capital gains taxes, and sales and income taxes. Worse still, states are cutting aid to local municipalities; these in turn have to make further cuts in their services.
We need another stimulus directed aat the states. About 20% of each states 2007-2008 budget would be enough to make state finances whole. If we do not do this, Federal and State governments will be working at cross purposes and the present stimulus funds will be all but wasted.
Yes, more stimulus means more debt, but when the economy recovers, this can be paid off if wise fiscal policies are followed.
Sent to New York Times
Traders Profit with Computers Set to High Speed
I'd call it "front running" (Traders Profit With Computers Set at High Speed. New York Times, July 24, 2009: A1). And isn't it illegal?
Sent to New York Times
Sent to New York Times
Fifty ways to kill recovery
Where has James Surowiecki been for the past nine months (Fifty ways to kill recovery, New Yorker, July 27, 2009: 23). Last October, Paul Krugman predicted this in the New York Times.
What I cannot understand is why Congress doesn't approve a second stimulus that gives each state 25% of its 2007 budget. This would enable each to maintain employment and services and prevent state and federal governments working at cross purposes.
It is still not too late to do that. It might even be something that Democrats and Republicans could agree on.
Sent to New Yorker
What I cannot understand is why Congress doesn't approve a second stimulus that gives each state 25% of its 2007 budget. This would enable each to maintain employment and services and prevent state and federal governments working at cross purposes.
It is still not too late to do that. It might even be something that Democrats and Republicans could agree on.
Sent to New Yorker
Tuesday, July 21, 2009
Kabuki and Judge Sotomayor
I am glad that Jeff Jacoby had the intellectual integrity to include Justices John Roberts and Samuel Alito as candidates for the Supreme Court who did not reveal their positions during their Senate confirmation hearings (Kabuki and Judge Sotomayor, Boston Globe, July 15. 2009).
However this was really only a concern with chief Justice Roberts. Both Judge Alito and Judge Sotomayor had many years on the Appeal Courts and revealed their positions clearly in the decisions that they wrote.
By all accounts Judge Sotomayor is a careful jurist who writes narrowly drawn legal opinions. There is no need for the Senate to carry out an inquisition into her positions. They are clearly stated in her record.
Thursday, July 16, 2009
Minimum Wage Folly
Mr. Jacoby is selective in marshaling the evidence against increasing the minimum wage (Minimum-Wage Folly, Boston Globe, July 8, 2009).
The best estimate from aggregating the results of over multiple studies of the effect in the US [provided by H. Doucouliagos and T. D. Stanley (British Journal of Industrial Relations, June 2009)] is that raising the minimum wage has no adverse impact on employment.
Furthermore the estimates that Jacoby cites of 300,000 lost jobs if the minimum wage is raised is equal to about half the average monthly job losses of the last six months.
Yes, such losses, if they were to occur, would be regrettable but, in the current context, they would not be the disaster that Jacoby is worried about.
Sent to Boston Globe
The best estimate from aggregating the results of over multiple studies of the effect in the US [provided by H. Doucouliagos and T. D. Stanley (British Journal of Industrial Relations, June 2009)] is that raising the minimum wage has no adverse impact on employment.
Furthermore the estimates that Jacoby cites of 300,000 lost jobs if the minimum wage is raised is equal to about half the average monthly job losses of the last six months.
Yes, such losses, if they were to occur, would be regrettable but, in the current context, they would not be the disaster that Jacoby is worried about.
Sent to Boston Globe
Tuesday, July 7, 2009
Citigroup Has a Plan to Fatten Salaries
Citigroup has a plan to fatten salaries (New York Times, June 24, 2009: B1). Not on my buck they don't.
Top management at Citibank must be living in a dream world of their own creation. After taking two giant bailouts, they want to spend the money internally by boosting salaries rather than lending it out which was what they were supposed to do.
There is little reason to raise salaries while all around, excellent bankers are losing their jobs. If some Citibank people get hired away, so be it. There are plenty of good candidates in the job market who can replace them.
As a major shareholder of Citibank, in my role as taxpayer, I want the directors of Citibank to put a stop to this nonsense immediately
Top management at Citibank must be living in a dream world of their own creation. After taking two giant bailouts, they want to spend the money internally by boosting salaries rather than lending it out which was what they were supposed to do.
There is little reason to raise salaries while all around, excellent bankers are losing their jobs. If some Citibank people get hired away, so be it. There are plenty of good candidates in the job market who can replace them.
As a major shareholder of Citibank, in my role as taxpayer, I want the directors of Citibank to put a stop to this nonsense immediately
Wednesday, June 24, 2009
Thursday, June 18, 2009
Freedom on a Small Island with a Big Heart
Sabin Willett is to be commended for his piece on the Uighers and for his work for those interned at Guantanamo (Freedom on a small island with a big heart, Boston Globe, June 16: A15).
I am appalled by the cowardice of the Obama administration and the congress and by the lies of right-wing commentators. These people are innocent of any crimes against the United States. It is time we took Colin Powell seriously. He famously said: “If it’s broken, you own it.” We have broken the lives of these Uighurs.
We need to do all we can to fix them, not lock them up in Guantanamo, nor send them to Albania -- six are in a refugee camp there -- nor to Bermuda, not to Palau. These may seem like paradise compared to Guantanamo but they are places where the Uighurs lack friends.
There ae thriving Uighur communities in the United States. The President should grant them all, including those in Albania, refugee status and admit them to the USA.
P.S. Sabin Willett also mentions that he "watched ... as four innocent men were unshackled." I hope he meant this metaphorically not literally. It is an affront to American justice if these people continued to be held in shackles after being found guiltless.
Sent to Boston Globe
I am appalled by the cowardice of the Obama administration and the congress and by the lies of right-wing commentators. These people are innocent of any crimes against the United States. It is time we took Colin Powell seriously. He famously said: “If it’s broken, you own it.” We have broken the lives of these Uighurs.
We need to do all we can to fix them, not lock them up in Guantanamo, nor send them to Albania -- six are in a refugee camp there -- nor to Bermuda, not to Palau. These may seem like paradise compared to Guantanamo but they are places where the Uighurs lack friends.
There ae thriving Uighur communities in the United States. The President should grant them all, including those in Albania, refugee status and admit them to the USA.
P.S. Sabin Willett also mentions that he "watched ... as four innocent men were unshackled." I hope he meant this metaphorically not literally. It is an affront to American justice if these people continued to be held in shackles after being found guiltless.
Sent to Boston Globe
Drugs Won the War
Nicholas Kristof calls for a commission to study current drug policy (Drugs Won the War, New York Times Week in Review, June 14, 2009: 10). There is no need. In 1972 a Canadian Royal Commission on the non-medical use of drugs (Le Dain Commission) made its report (http://www.druglibrary.org/schaffer/Library/studies/ledain/ldctoc.html).
The Canadian Government ignored its findings. The US should ask the Canadian Embassy for a copy and fully implement its findings.
Sent to New York Times
The Canadian Government ignored its findings. The US should ask the Canadian Embassy for a copy and fully implement its findings.
Sent to New York Times
Doctors and the Cost of Care
With respect to the AMA and the Health Insurance cartel, we need facts not spin (Doctors and the Cost of Care, New York Times Week in Review, June 14, 2009: 7).
Fact, for nearly forty years the AMA has opposed improvement in health care coverage. Spin, the AMA now claims that it can control costs and improve coverage.
Fact, for nearly forty years, the Insurance industry has opposed improving coverage. Spin, they now claim that they can control costs and provide universal coverage.
They are not to be believed.
Only a competing single payer system will do. The call for a trigger is absurd. If the industry had the will it could have done what it proposes sometime in the past forty years. It has not, giving them a few more years would be an unreasonable waste of time during which many would remain uninsured.
The idea of small cooperatives is also un workable. That is the same formula that the industry imposed with the drug plan -- small cooperatives can bargain with the drug cartels (I mean the pharmaceutical companies) but the government cannot bring its massive purchasing power to bear. That plan has no hope of cost reduction.
We must vote for a single payer competitor to be in the mix.
Sent to New York Times
Fact, for nearly forty years the AMA has opposed improvement in health care coverage. Spin, the AMA now claims that it can control costs and improve coverage.
Fact, for nearly forty years, the Insurance industry has opposed improving coverage. Spin, they now claim that they can control costs and provide universal coverage.
They are not to be believed.
Only a competing single payer system will do. The call for a trigger is absurd. If the industry had the will it could have done what it proposes sometime in the past forty years. It has not, giving them a few more years would be an unreasonable waste of time during which many would remain uninsured.
The idea of small cooperatives is also un workable. That is the same formula that the industry imposed with the drug plan -- small cooperatives can bargain with the drug cartels (I mean the pharmaceutical companies) but the government cannot bring its massive purchasing power to bear. That plan has no hope of cost reduction.
We must vote for a single payer competitor to be in the mix.
Sent to New York Times
Tuesday, June 16, 2009
Single Payer Health Care
I too have experienced the Canadian healthcare system.
All countries ration healthcare: America does it by price; other countries through waitlists.
At least in Canada, everyone has a chance to get on a waitlist, unlike the United States with 47 million uninsured.
Sent to Wall Street Journal
Sent to Wall Street Journal
Monday, June 15, 2009
The Quagmire Ahead
There is much to agree with in David Brooks' column (The Quagmire Ahead, New York Times, June 2, 2009: A21). It will be very hard to change the GM culture.
I must object to his sneers against the UAW for it having negotiated the job bank and 'out at 50' deals. He has forgotten their rationale.
In the past, the big automakers used to close down for a couple of months each year in order to retool for the next model year. The union negotiated that the 10 month wage should be spread over 12 months. That is the genesis of the job bank.
Assembly line work is backbreaking and debilitating. The cycle time at Lordstown was about 63 seconds. That is, a worker faced a new car assembly every minute and had to undertake his or her assigned operation, that is sixty times an hour, and about 500 times a day. And that is for your whole working life, day in and day out. That is why the retirement at 50 deal was negotiated.
A better understanding of labor history would enable us to realize that these labor practices were not insane.
Sent to New York Times
I must object to his sneers against the UAW for it having negotiated the job bank and 'out at 50' deals. He has forgotten their rationale.
In the past, the big automakers used to close down for a couple of months each year in order to retool for the next model year. The union negotiated that the 10 month wage should be spread over 12 months. That is the genesis of the job bank.
Assembly line work is backbreaking and debilitating. The cycle time at Lordstown was about 63 seconds. That is, a worker faced a new car assembly every minute and had to undertake his or her assigned operation, that is sixty times an hour, and about 500 times a day. And that is for your whole working life, day in and day out. That is why the retirement at 50 deal was negotiated.
A better understanding of labor history would enable us to realize that these labor practices were not insane.
Sent to New York Times
Friday, May 29, 2009
Republican Call for an Inquiry On Pelosi Claim is Rejected
As a left-wing Democrat, I am sorry that the House defeated the Republican call for an inquiry into what Congresswoman Pelosi knew and when she knew it (Republican Call for Inquiry On Pelosi Claim Is Rejected. New York Times, May 22, 2009: A15).
The more we know about who was responsible for approving, signing off on, and protesting the torture memoranda the better.
This has been a horrible period in America's life. We cannot just move forward without looking back; unless we do, we will be complicit in the torture done in our names.
Only by rejecting the actions of everyone involved and by holding them to account can we put this behind us.
We need a full investigation now of the White House leaders and the Congressional leaders who were enablers of the actions undertaken in Iraq, in Afghanistan, and at Guantanamo.
Sent to New York Times
The more we know about who was responsible for approving, signing off on, and protesting the torture memoranda the better.
This has been a horrible period in America's life. We cannot just move forward without looking back; unless we do, we will be complicit in the torture done in our names.
Only by rejecting the actions of everyone involved and by holding them to account can we put this behind us.
We need a full investigation now of the White House leaders and the Congressional leaders who were enablers of the actions undertaken in Iraq, in Afghanistan, and at Guantanamo.
Sent to New York Times
Sunday, May 24, 2009
U.S.Tells Banks They Need $75 billion More in Capital
Your discussion of the Bank's capital requirements suggest that they will be allowed to improve their debt equity ratios by converting government owned preferred stock into common stock. (U.S.Tells Banks They Need $75 billion More in Capital, Friday, May 8: A1, A3).
This is absurd. As Mr. Ely, quoted in your article, states: Such conversion will not add one penny to the banks' ability to pay lenders if there is a run on the bank. The accounting ratios may be improved through a stroke of the pen, but they are a fiction. In the real world, government owned preferred stock, though perhaps not privately owned preferred stock, is as good as an equity position because it is inconceivable that the government would call in that debt if the bank got into difficulty.
Let's be real: force the banks to raise the needed capital in the private markets, or with an additional infusion of government money. Only new money will really strengthen the banks' position.
This is absurd. As Mr. Ely, quoted in your article, states: Such conversion will not add one penny to the banks' ability to pay lenders if there is a run on the bank. The accounting ratios may be improved through a stroke of the pen, but they are a fiction. In the real world, government owned preferred stock, though perhaps not privately owned preferred stock, is as good as an equity position because it is inconceivable that the government would call in that debt if the bank got into difficulty.
Let's be real: force the banks to raise the needed capital in the private markets, or with an additional infusion of government money. Only new money will really strengthen the banks' position.
Corporations taking advantage of the taxman, watchdog reports
I am not sure what outrages me more about the latest revelation by the Auditor General (Corporations taking advantage of the taxman, watchdog reports, Globe and Mail, May 13, 2009).
I am surprised that the hapless tax department felt unable to adjust its interest rate to reflect falling market rates.
But I am appalled at the failure in Corporate Citizenship exhibited by the 50 unnamed companies who took arbitrage advantage of the government. They should be named.
Sen t to Toronto Globe and Mail
I am surprised that the hapless tax department felt unable to adjust its interest rate to reflect falling market rates.
But I am appalled at the failure in Corporate Citizenship exhibited by the 50 unnamed companies who took arbitrage advantage of the government. They should be named.
Sen t to Toronto Globe and Mail
Saturday, May 23, 2009
Sunday, May 10, 2009
Wednesday, April 29, 2009
Obedience
There is a chilling paragraph in Mr. Ali Soufan's Op Ed (My Tortured Decision, New York Times, April 23, 2009: A25). He says, "My C.I.A. colleagues who balked at the techniques ... were instructed to continue."
That took me back nearly 40 years to when I first read about Stanley Milgram's experiments on obedience. In those days we believed that his findings would resonate down the ages so that no one would hesitate in doing the right thing even when pressured to do something wrong by a superior.
How wrong we were.
Sent to New York Times
That took me back nearly 40 years to when I first read about Stanley Milgram's experiments on obedience. In those days we believed that his findings would resonate down the ages so that no one would hesitate in doing the right thing even when pressured to do something wrong by a superior.
How wrong we were.
Sent to New York Times
Scratch that Promise
It is unconscionable that the Commonwealth is providing much of the aid to towns and cities (through the lottery) on the backs of the poor.
It is even more unconscionable that the Commonwealth through its advertising program is acting as a "pusher" to help people feed their addiction to scratch cards.
What the state needs is a progressive income tax. This could easily be achieved by amending the Constitution to say: "Massachusetts Income Tax will be a percentage of the Federal Income Tax paid; the percentage to be set by the General Court from time to time."
Then the Massachusetts tax form would be the shortest in the United States: just 3 or 4 lines indicating what you sent to the IRS, the appropriate percentage of that, the amount withheld and the amount due to be paid or refunded). Think of the energy released into productive work during March and April of each year.
Sent to the Boston Globe
It is even more unconscionable that the Commonwealth through its advertising program is acting as a "pusher" to help people feed their addiction to scratch cards.
What the state needs is a progressive income tax. This could easily be achieved by amending the Constitution to say: "Massachusetts Income Tax will be a percentage of the Federal Income Tax paid; the percentage to be set by the General Court from time to time."
Then the Massachusetts tax form would be the shortest in the United States: just 3 or 4 lines indicating what you sent to the IRS, the appropriate percentage of that, the amount withheld and the amount due to be paid or refunded). Think of the energy released into productive work during March and April of each year.
Sent to the Boston Globe
Thursday, April 23, 2009
It May be Time for the Fed to Go Negative
I do not think that we should take Dr. Mankiw's advice seriously (It may be time for the Fed to go negative, New York Times, Sunday, April 19, 2009: Business Section).
If we took his advice, inflation would wipe out the only remaining strength in our 401k portfolios: the fixed income portion.
We should remember Mr. Mankiw's track record. He was President George W. Bush's Chair of the Council of Economic Advisers from 2003-2005. A period during which the Iraq war was fought "off the books;" a period during which the bases of our current economic woes were created.
Would any responsible economic adviser allow that? I think not.
Sent to New York Times
If we took his advice, inflation would wipe out the only remaining strength in our 401k portfolios: the fixed income portion.
We should remember Mr. Mankiw's track record. He was President George W. Bush's Chair of the Council of Economic Advisers from 2003-2005. A period during which the Iraq war was fought "off the books;" a period during which the bases of our current economic woes were created.
Would any responsible economic adviser allow that? I think not.
Sent to New York Times
Scratch that Promise
It is unconscionable that the Commonwealth is providing much of the aid to towns and cities (through the lottery) on the backs of the poor.
It is even more unconscionable that the Commonwealth through its advertising program is acting as a "pusher" to help people feed their addiction to scratch cards.
What the state needs is a progressive income tax. This could easily be achieved by amending the Constitution to say: "Massachusetts Income Tax will be a percentage of the Federal Income Tax paid; the percentage to be set by the General Court from time to time."
Then the Massachusetts tax form would be the shortest in the United States: just 3 or 4 lines indicating what you sent to the IRS, the appropriate percentage of that, the amount withheld and the amount due to be paid or refunded). Think of the energy released into productive work during March and April of each year.
Sent to Boston Globe
It is even more unconscionable that the Commonwealth through its advertising program is acting as a "pusher" to help people feed their addiction to scratch cards.
What the state needs is a progressive income tax. This could easily be achieved by amending the Constitution to say: "Massachusetts Income Tax will be a percentage of the Federal Income Tax paid; the percentage to be set by the General Court from time to time."
Then the Massachusetts tax form would be the shortest in the United States: just 3 or 4 lines indicating what you sent to the IRS, the appropriate percentage of that, the amount withheld and the amount due to be paid or refunded). Think of the energy released into productive work during March and April of each year.
Sent to Boston Globe
Wednesday, April 22, 2009
Sunday, April 19, 2009
Torture
"I was just following orders" was not a defense at Nuremberg.
"I was just following the guidelines of the Office of Legal Counsel." should not be a defense in America today.
Sent to New York Times
"I was just following the guidelines of the Office of Legal Counsel." should not be a defense in America today.
Sent to New York Times
Tuesday, April 14, 2009
The Answer is the Convoy
Your headline claims that there are few military options against piracy (Boston Globe, April 9, 2008: A10).
Perhaps there is only one, but it is a good one. If the shipping companies agreed to coordinate their shipping so that a dozen vessels sailed in convoy through the dangerous waters and were escorted by United Nations Naval vessels, the threat would recede.
2009 problems require 1940's solutions!
Sent to Boston Globe
Perhaps there is only one, but it is a good one. If the shipping companies agreed to coordinate their shipping so that a dozen vessels sailed in convoy through the dangerous waters and were escorted by United Nations Naval vessels, the threat would recede.
2009 problems require 1940's solutions!
Sent to Boston Globe
Healthcare
In his final sentence, Ramesh Ponnuru states "Some people, of course, would still chose to go without it. But that would be their call, as it should be in a free country" (The Misguided Quest For Universal Coverage, New York Times, April 9, 2009: A23).
If we adopted this position we would be privatizing health and socializing sickness. Just like the Banks!
The freedom to decline insurance impinges on my freedom to avoid the 1.7% surcharge my family and its employers now pay on our health insurance premiums.
Sent to the New York Times
If we adopted this position we would be privatizing health and socializing sickness. Just like the Banks!
The freedom to decline insurance impinges on my freedom to avoid the 1.7% surcharge my family and its employers now pay on our health insurance premiums.
Sent to the New York Times
Friday, April 10, 2009
The Nuremberg Defense for Torture
You report (Report outlines involvement of Medical Workers in Abusive C.I.A. Interrogations, New York Times, April 7, 2009: A6) that C.I.A. Director Panetta "has stated repeatedly that no one who took actions based on legal guidance from the Department of Justice at the time should be investigated let alone punished."
He is invoking the Nuremberg Defense.
Such a defense in untenable in the United States. Our self respect and our desire for the good opinion of the world compels us to investigate and, if necessary, bring to account those who violated the rules of war and American law.
Sent to New York Times
He is invoking the Nuremberg Defense.
Such a defense in untenable in the United States. Our self respect and our desire for the good opinion of the world compels us to investigate and, if necessary, bring to account those who violated the rules of war and American law.
Sent to New York Times
Women, Mathematics, etc
Senator Marian Walsh has been deemed unsuitable for a position at the state Health and Education Facilities Authority because she has no expertise in public sector bonding.
I would have thought that made her an excellent choice. Someone on the board who can ask naive questions about complex securities like debt swaps and derivatives would force the experts to reveal the level of risk that the Authority was getting itself into.
This brings us to Dr. Iris Mack, with a Ph.D. in mathematics, who was fired from Harvard Management in 2002 for telling her boss's boss (then President Larry Summers) that the employees at Harvard Management were undertaking trades in securities whose risk they did not understand (Ex-employee says she warned Harvard of risky moves, Boston Globe, April 3, 2009). It is a pity that Dr. Summers didn't take her seriously. If he had, he would never have made the remarks that sparked the controversy about women in science and engineering a few years later.
--
Martin G. Evans & Nancy R. Evans
Sent to Boston Globe
I would have thought that made her an excellent choice. Someone on the board who can ask naive questions about complex securities like debt swaps and derivatives would force the experts to reveal the level of risk that the Authority was getting itself into.
This brings us to Dr. Iris Mack, with a Ph.D. in mathematics, who was fired from Harvard Management in 2002 for telling her boss's boss (then President Larry Summers) that the employees at Harvard Management were undertaking trades in securities whose risk they did not understand (Ex-employee says she warned Harvard of risky moves, Boston Globe, April 3, 2009). It is a pity that Dr. Summers didn't take her seriously. If he had, he would never have made the remarks that sparked the controversy about women in science and engineering a few years later.
--
Martin G. Evans & Nancy R. Evans
Sent to Boston Globe
Monday, April 6, 2009
Ersatz Capitalism
Professor Stiglitz believes that the President's bailout for ailing banks is a win-win-lose proposition with the government coming up with the short end of the stick (Obama's ersatz capitalism, New York Times, April1, 2009: A25). I agree.
There is however a solution that could be a win-win-win.
That would be for the government to focus on the real problem -- delinquent mortgages rather than on the toxic derivatives built on these mortgages.
My plan would represent a major tweaking of the present H4H plan and has the advantages of simplicity.
In H4H the mortgage is written down before the government will partner with a homeowner. My modification would be for government and homeowner to partner on the current value of the mortgage. The homeowner pays what he or she can, the government picks up the rest. Over time, both homeowner and government build up equity in the home based in proportion to the investment they have made.
What will this do?
First housing markets will be stabilized as there will be no foreclosure; people can stay in their homes and their children can continue in their current schools; neighborhoods will be stabilized and, over time, prices will rise again.
Last and not least, the banks will be made whole without the government having to buy these toxic assets and without complicated auctions that no one, least of all the financiers, can understand.
Of course there is a downside: the scoundrels and greed ones who gave and entered into unwise mortgages will be saved. But given the current downspin of the economy, that seems a small price to pay for stability.
There is however a solution that could be a win-win-win.
That would be for the government to focus on the real problem -- delinquent mortgages rather than on the toxic derivatives built on these mortgages.
My plan would represent a major tweaking of the present H4H plan and has the advantages of simplicity.
In H4H the mortgage is written down before the government will partner with a homeowner. My modification would be for government and homeowner to partner on the current value of the mortgage. The homeowner pays what he or she can, the government picks up the rest. Over time, both homeowner and government build up equity in the home based in proportion to the investment they have made.
What will this do?
First housing markets will be stabilized as there will be no foreclosure; people can stay in their homes and their children can continue in their current schools; neighborhoods will be stabilized and, over time, prices will rise again.
Last and not least, the banks will be made whole without the government having to buy these toxic assets and without complicated auctions that no one, least of all the financiers, can understand.
Of course there is a downside: the scoundrels and greed ones who gave and entered into unwise mortgages will be saved. But given the current downspin of the economy, that seems a small price to pay for stability.
Friday, April 3, 2009
Op ED: Open Government (with Andrew Kingsley)
OpEd: Andrew Kingsley & Martin G. Evans, Hire a Window Cleaner, Cambridge Chronicle
Page Charges
I must protest Ms. Schroeder's comments that manuscripts in scientific journals are not paid for by government (An unfair formula, Letters, Boston Globe, March 30, 2009: A14).
In many fields, especially the biological sciences, publishers charge authors an article processing fee or a page charge for their submissions and publications. Researchers when applying for research grants build submission fee costs and page charge costs into their budget proposals.
When grants are received for the research from government granting agencies, governments are indeed paying for the production of the manuscript. For these publishers the one-year delay before free public access seems very reasonable.
[Editor. See http://www.biomedcentral.com/info/authors/apccomparison/ for evidence]
Sent to Boston Globe
In many fields, especially the biological sciences, publishers charge authors an article processing fee or a page charge for their submissions and publications. Researchers when applying for research grants build submission fee costs and page charge costs into their budget proposals.
When grants are received for the research from government granting agencies, governments are indeed paying for the production of the manuscript. For these publishers the one-year delay before free public access seems very reasonable.
[Editor. See http://www.biomedcentral.com/info/authors/apccomparison/ for evidence]
Sent to Boston Globe
More on bailout
The bailout presented yesterday may help banks and investors but it does little for the homeowner.
Why do we not have a program that does help the homeowner such as the government entering into a shared appreciation mortgage (the homeowner and the government both contribute to paying down the mortgage at its original face value). This would make the mortgages whole which would trickle up to help the banks. It would keep the homeowners in their homes by preventing foreclosure, it would protect schools and neighborhoods.
Sent to the New York Times
Why do we not have a program that does help the homeowner such as the government entering into a shared appreciation mortgage (the homeowner and the government both contribute to paying down the mortgage at its original face value). This would make the mortgages whole which would trickle up to help the banks. It would keep the homeowners in their homes by preventing foreclosure, it would protect schools and neighborhoods.
Sent to the New York Times
Tuesday, March 24, 2009
Foreclosure and AIG
C. Northcote Parkinson said it best: (I paraphrase) the smaller the dollar value of a budgetary item, the more attention it gets from the decision makers. How true: we can all get our minds around the $150 million that were paid out in bonuses; we cannot begin to grasp the many trillions it may take to stabilize the banking system.
But focusing on the bonuses is a distraction from the main problem: the on going bailouts: There are two things wrong with the current approach: the wrong people are pursuing the wrong strategy.
Social Scientist have known for many years the problem of escalating commitment. Smart people commit funds to a project; the project turns out badly, so the smart people commit more funds to the same strategy in an attempt to recoup their losses. The men in charge of the current solution were in various ways associated with the roots of the problem. Larry Summers was instrumental in arguing for deregulation in the Clinton years; Tim Geithner, at the Federal Reserve Bank of New York, was responsible for the oversight of the institutions hat are collapsing around us. We need new minds to focus on the problem.
We also need a new approach. For every mortgage that is in trouble, there are many derivatives that hold a piece of that mortgage. But worse still, on each of those derivatives there are many, many insurance bets that have been made and that are held by AIG. There is not enough money in the universe to make AIG whole by taking those derivative derivatives off their hand. As Elizabeth Warren at a Harvard Public Meeting on the crisis said: Helping the Banks is looking at the wrong end of the dog. We need to look at the original mortgages. If they are made whole the pyramid of derivatives that rest on each of them will also be made whole. The way to do this is through the government entering into shared appreciation mortgages (SAMs) with the homeowner: the homeowners pay what they can, the government picks up the balance; both build up equity in the home which they will realize when the house is sold. This will be expensive. It has the advantages of simplicity: there is no need to unbundle complex derivatives; the mortgage handler simply goes on receiving the original income flow which is passed upstream to the derivative holders; the derivative holders are made whole. It keeps homeowners in their house; it keeps homeowners' children in their same schools; it maintains the stability of neighborhoods.
It will be expoensive and it will reward the good, the bad, the scoundrels, and the banks equally.
That will be a small price to pay to stop the disaster that faces us if we continue along the present path.
--
Martin G. Evans
Professor Emeritus of Organizational Behaviour
Rotman School of Management
617-876-3980
URL: www.rotman.utoronto.ca/~evans
Co-Editor Emeritus, M@n@gement
Martin G. Evans
Professor Emeritus of Organizational Behaviour
Rotman School of Management
617-876-3980
URL: www.rotman.utoronto.ca/~evans
Co-Editor Emeritus, M@n@gement
Sunday, March 15, 2009
Shovel Ready and the issue of accessibility
The Governor and his advisors clearly do not understand what "shovel ready" means.
A shovel ready project should already have had the appropriate reviews carried out, including that for accessibility.
They also don not seem to understand the economic multiplier effect thatg we hope to achieve with stimulus funds. Money paid to analysts to examine whether or not a project meets the accessibility requirements is just as useful in generating demand in the market place as money spent on contractors building or retrofitting buildings.
In addition this is poor economics: doing a project right the first time is much cheaper than doing an upgrade later on.
A shovel ready project should already have had the appropriate reviews carried out, including that for accessibility.
They also don not seem to understand the economic multiplier effect thatg we hope to achieve with stimulus funds. Money paid to analysts to examine whether or not a project meets the accessibility requirements is just as useful in generating demand in the market place as money spent on contractors building or retrofitting buildings.
In addition this is poor economics: doing a project right the first time is much cheaper than doing an upgrade later on.
The Never-Ending Bailout
Throwing more money at AIG represents escalating commitment to a losing course of action (The Never-Ending Bailout, New York Times,March 3, 2009: A22).
The insurance contracts held by AIG are many multiples of the mortgages owed by homeowners, because many entities took out insurance policies on these basic mortgages and on the derivatives into which they were sliced. To bailout AIG will require much more money than the amount currently committed for bank bailouts.
We really need some new thinking in Washington.
If every mortgage has multiple derivatives associated with it, then the way to detoxify all these derivatives is to detoxify the underlying mortgage. The current attempt to write down mortgages is difficult to accomplish because all the owners of the mortgages and its derivatives have to agree on such a step.
The solution is to make the mortgages whole. This can simply be done through the government joining the stressed homeowner in a Shared Appreciation Mortgage based on the existing face value of the mortgage. For this only the homeowner and the government have to come to agreement. The mortgage holder and all the parties to the derivatives do not have to be involved because their income stream is unaffected. The homeowner pays what he or she can, the government picks up the balance. Going forward as the mortgage is paid down, both the homeowner and the government build up equity. When house prices recover and the house is sold, government and homeowner get their proportionate shares of the proceeds based upon their proportionate contributions.
The risk is that the government may face losses if house prices do not recover; but the government can continue to hold its mortgage if the house is sold at less than the value of the mortgage -- governments in this situation have infinite patience.
The Shared Appreciation Mortgage has several advantages: the mortgage and derivative holders are made whole; the mortgage holder does not have to go through the costs of foreclosure; and the neighborhood is not scarred by empty, foreclosed houses.
What are we waiting for?
The insurance contracts held by AIG are many multiples of the mortgages owed by homeowners, because many entities took out insurance policies on these basic mortgages and on the derivatives into which they were sliced. To bailout AIG will require much more money than the amount currently committed for bank bailouts.
We really need some new thinking in Washington.
If every mortgage has multiple derivatives associated with it, then the way to detoxify all these derivatives is to detoxify the underlying mortgage. The current attempt to write down mortgages is difficult to accomplish because all the owners of the mortgages and its derivatives have to agree on such a step.
The solution is to make the mortgages whole. This can simply be done through the government joining the stressed homeowner in a Shared Appreciation Mortgage based on the existing face value of the mortgage. For this only the homeowner and the government have to come to agreement. The mortgage holder and all the parties to the derivatives do not have to be involved because their income stream is unaffected. The homeowner pays what he or she can, the government picks up the balance. Going forward as the mortgage is paid down, both the homeowner and the government build up equity. When house prices recover and the house is sold, government and homeowner get their proportionate shares of the proceeds based upon their proportionate contributions.
The risk is that the government may face losses if house prices do not recover; but the government can continue to hold its mortgage if the house is sold at less than the value of the mortgage -- governments in this situation have infinite patience.
The Shared Appreciation Mortgage has several advantages: the mortgage and derivative holders are made whole; the mortgage holder does not have to go through the costs of foreclosure; and the neighborhood is not scarred by empty, foreclosed houses.
What are we waiting for?
The 2 percent solution
I heartily agree with Tom Cosgrove (The 2 percent solution, Boston Globe, March 2, 2009: A11). We need a progressive state income tax.
This could easily be achieved by amending the Constitution to say: "Massachusetts Income Tax will be a percentage of the Federal Income Tax paid; the percentage to be set by the General Court from time to time."
Then the Massachusetts tax form would be the shortest in the United States: just 3 or 4 lines indicating what you sent to the IRS, the appropriate percentage of that, the amount withheld and the amount due (to be paid or refunded). Think of the energy released into productive work during March and April of each year.
While we are about it let us fix the gas tax too. It should be set as a % of the wholesale price of gas. I would like to see a relatively high tax with 80% of the funds going to highways, bridges and rapid transit and 20% going as a tax rebate in some form to those at the bottom of the income scale.
This could easily be achieved by amending the Constitution to say: "Massachusetts Income Tax will be a percentage of the Federal Income Tax paid; the percentage to be set by the General Court from time to time."
Then the Massachusetts tax form would be the shortest in the United States: just 3 or 4 lines indicating what you sent to the IRS, the appropriate percentage of that, the amount withheld and the amount due (to be paid or refunded). Think of the energy released into productive work during March and April of each year.
While we are about it let us fix the gas tax too. It should be set as a % of the wholesale price of gas. I would like to see a relatively high tax with 80% of the funds going to highways, bridges and rapid transit and 20% going as a tax rebate in some form to those at the bottom of the income scale.
Message to Regulators
Tyler Cowan's article on the bailout continues to focus simply on the problem of the banks (Message to Regulators: Bank Fix Needed Quickly, New York Times Business Section, March 1, 2009). He does not explore options that might make the banks whole and also help individual homeowners and their communities. The best option with this win-win characteristic would be the Shared Appreciation Mortgage (SAMs).
SAMs are the perfect instrument to bail out lenders, prevent foreclosures and restore confidence. In a SAM, a government agency would join with the distressed homeowner in meeting payments on the mortgage. There is no write-down so that lenders and derivative owners are made whole again. There is no foreclosure so that the individual homeowner stays in his home. There is no foreclosure so that neighborhoods are not hollowed out by a proliferation of empty homes.
There is risk to the government. As time goes by, the homeowner and the government build up equity in the home; the share of equity based on their proportionate contributions. There is however no guarantee that the total equity will exceed the homeowner's original purchase price before the house is eventually sold. In the best case scenario, both government and homeowner would recover their investments; in the worst case they would not. The risk of government losses might be reduced if the government part of the mortgage stayed with the house after an underwater sale, though that would reduce the attractiveness of the house to the new owner and consequently reduce the funds received by the seller. But this would work -- the government has infinite patience; early payoff is not a necessity.
Why don't we intensively discuss this solution, or something similar (as suggested by Andrew Caplin of New York University), as part of the recovery efforts that are being made?
SAMs are the perfect instrument to bail out lenders, prevent foreclosures and restore confidence. In a SAM, a government agency would join with the distressed homeowner in meeting payments on the mortgage. There is no write-down so that lenders and derivative owners are made whole again. There is no foreclosure so that the individual homeowner stays in his home. There is no foreclosure so that neighborhoods are not hollowed out by a proliferation of empty homes.
There is risk to the government. As time goes by, the homeowner and the government build up equity in the home; the share of equity based on their proportionate contributions. There is however no guarantee that the total equity will exceed the homeowner's original purchase price before the house is eventually sold. In the best case scenario, both government and homeowner would recover their investments; in the worst case they would not. The risk of government losses might be reduced if the government part of the mortgage stayed with the house after an underwater sale, though that would reduce the attractiveness of the house to the new owner and consequently reduce the funds received by the seller. But this would work -- the government has infinite patience; early payoff is not a necessity.
Why don't we intensively discuss this solution, or something similar (as suggested by Andrew Caplin of New York University), as part of the recovery efforts that are being made?
Appeals Court Stops Release
It is clear that President Obama should grant refugee status to the 17 Uighurs still imprisoned at Guantanamo (Appeals Court Stops Release of 17 Detainees, New York Times, February 17, 2009: A18). We should not forget that there are also 5 Uighurs languishing in a refugee camp in Albania who were sent there under George W. Bush's watch. They too should be brought back and released in the United States.
Colin Powell famously said: “If it’s broken, you own it.” We have broken the lives of these Uighurs. We need to do all we can to fix them, not deport them to Albania, nor keep them locked up in Guantanamo.
Bring them to the United States now.
Colin Powell famously said: “If it’s broken, you own it.” We have broken the lives of these Uighurs. We need to do all we can to fix them, not deport them to Albania, nor keep them locked up in Guantanamo.
Bring them to the United States now.
Monday, March 2, 2009
Harvard in Alston
Harvard is wrong (Harvard slows work on Alston complex, Boston Globe, February 19, 2009: A1, A4).
Harvard is the one institution in the Commonwealth that can afford the counter-cyclical spending we need if we are to recover from the current economic crisis. Harvard should put its resources into helping the recovery not timidly draw back behind its Cambridge walls.
Being altruistic is not the only reason that Harvard should press on with the development. The Science Complex will cost a lot less now than it would in a few years time after the recovery is in full swing.
Take the risk Harvard! Spend some of that endowment -- it is only about 4% -- for the good of Harvard, the region, and the country.
Sent to Boston Globe
Harvard is the one institution in the Commonwealth that can afford the counter-cyclical spending we need if we are to recover from the current economic crisis. Harvard should put its resources into helping the recovery not timidly draw back behind its Cambridge walls.
Being altruistic is not the only reason that Harvard should press on with the development. The Science Complex will cost a lot less now than it would in a few years time after the recovery is in full swing.
Take the risk Harvard! Spend some of that endowment -- it is only about 4% -- for the good of Harvard, the region, and the country.
Sent to Boston Globe
Playmobile
Ms Winfrey claims that the purpose of Playmobile toys is "to familiarize the child with the realities of life" (All Fun and Games, Till You Get Detained, New York Times, February 16, 2009: B5). I find most reprehensible those sets that include both Dinosaurs (not dinosaur remains) and humans.
That is very much the wrong message to give.
Sent to New York Times
That is very much the wrong message to give.
Sent to New York Times
Thursday, February 19, 2009
Saturday, February 14, 2009
Budget Cuts
Your editorial writer is wrong when he/she states "And using millions of federal dollars to raise the base of the $833 million school budget, which is comprised largely of salaries, could be disastrous when the stimulus money stops flowing" (Crash course in budget cuts, Boston Globe, February 6, 2009: A14).
That is exactly the purpose of the stimulus money. It is to replace local funds that have dried up in this recession. It is to save jobs. After all in the precipitate decline in this economy, saving a job is just as good as creating a new job.
The stimulus money will only cease to flow after it has worked its magic and local revenues have reverted to their pre-recession levels.
The tragedy is that the stimulus money is arriving too late and beginning to look like being too little.
Sent to Boston Globe
That is exactly the purpose of the stimulus money. It is to replace local funds that have dried up in this recession. It is to save jobs. After all in the precipitate decline in this economy, saving a job is just as good as creating a new job.
The stimulus money will only cease to flow after it has worked its magic and local revenues have reverted to their pre-recession levels.
The tragedy is that the stimulus money is arriving too late and beginning to look like being too little.
Sent to Boston Globe
Executive Pay
As President Obama has already discovered, it is hard to change a culture; yet this is what he proposes with regard to executive compensation (Executive Pay Limits Seek To Alter Corporate Culture, New York Times, February 5, 2009: A1, B4). It is much easier to bring about change by issuing rules that firms must obey.
I would suggest a rule that if a company decides to provide any fringe benefit (with the exception of basic health care) then that benefit (bonus, stock option, restricted stock, automobile, country club fee, etc.) must be provided to each member of the company from the CEO to the research scientist, to the janitor. The amount each person gets should be the same percentage of base salary rather than the disproportionate percentage given to the CEO compared to the janitor: CEO's seem to get multiples of their salary in fringe benefits while ordinary people might get a bonus of 10% in a good year.
Such a rule would soon curb the excesses of Executive compensation.
Sent to New York Times
I would suggest a rule that if a company decides to provide any fringe benefit (with the exception of basic health care) then that benefit (bonus, stock option, restricted stock, automobile, country club fee, etc.) must be provided to each member of the company from the CEO to the research scientist, to the janitor. The amount each person gets should be the same percentage of base salary rather than the disproportionate percentage given to the CEO compared to the janitor: CEO's seem to get multiples of their salary in fringe benefits while ordinary people might get a bonus of 10% in a good year.
Such a rule would soon curb the excesses of Executive compensation.
Sent to New York Times
Bailout Alternatives
Your discussion of the bailout seems to follow the agenda of the previous administration. Your editorial and op-ed writers talk in great detail about how to make the banks whole by removing their toxic assets (for example Max Holmes, Good Bank, Bad Bank; Good Plan, Better Plan, New York Times, February 1, 2009: 10).
You rarely talk about options that might make the banks whole and also help individual homeowners and their communities. The best option would be the Shared Appreciation Mortgage (SAMs).
SAMs are the perfect instrument to bail out lenders, prevent foreclosures and restore confidence. In a SAM, a government agency would join with the distressed homeowner in meeting payments on the mortgage. There is no write-down so that lenders and derivative owners are made whole again. There is no foreclosure so that the individual homeowner stays in his home. There is no foreclosure so that neighborhoods are not hollowed out by a proliferation of empty homes.
There is risk to the government. As time goes by, the homeowner and the government build up equity in the home; the share of equity based on their proportionate contributions. There is however no guarantee that the total equity will exceed the homeowner's original purchase price before the house is eventually sold. In the best case scenario, both government and homeowner would recover their investments; in the worst case they would not. The risk of government losses might be reduced if the government part of the mortgage stayed with the house after an underwater sale, though that would reduce the attractiveness of the house to the new owner and consequently reduce the funds received by the seller. But this would work -- the government has infinite patience; early payoff is not a necessity.
Why don't we intensively discuss this solution, or something similar (as suggested by Andrew Caplin of New York University), as part of the recovery efforts that are being made?
Sent to New York Times
You rarely talk about options that might make the banks whole and also help individual homeowners and their communities. The best option would be the Shared Appreciation Mortgage (SAMs).
SAMs are the perfect instrument to bail out lenders, prevent foreclosures and restore confidence. In a SAM, a government agency would join with the distressed homeowner in meeting payments on the mortgage. There is no write-down so that lenders and derivative owners are made whole again. There is no foreclosure so that the individual homeowner stays in his home. There is no foreclosure so that neighborhoods are not hollowed out by a proliferation of empty homes.
There is risk to the government. As time goes by, the homeowner and the government build up equity in the home; the share of equity based on their proportionate contributions. There is however no guarantee that the total equity will exceed the homeowner's original purchase price before the house is eventually sold. In the best case scenario, both government and homeowner would recover their investments; in the worst case they would not. The risk of government losses might be reduced if the government part of the mortgage stayed with the house after an underwater sale, though that would reduce the attractiveness of the house to the new owner and consequently reduce the funds received by the seller. But this would work -- the government has infinite patience; early payoff is not a necessity.
Why don't we intensively discuss this solution, or something similar (as suggested by Andrew Caplin of New York University), as part of the recovery efforts that are being made?
Sent to New York Times
Tuesday, February 3, 2009
Monday, February 2, 2009
Fehrnstrom's Words
Eric Fehrnstrom should choose his words more carefully (Guantanamo: A symbol of US resolve, Boston Globe, January 27, 2009: A11). In the middle of his unsupportable paean of praise for the extra-legal excesses of the Bush administration he said: [the enemy] call for ... the collapse of the United States, economically and militarily.
It seems to me that Mr. Bush is that enemy; for he has accomplished just that.
Boston Globe
It seems to me that Mr. Bush is that enemy; for he has accomplished just that.
Boston Globe
Tuesday, January 27, 2009
Cullen on Libya
It was good to see the Editorial and Columnist independence of the Globe from its big sister the New York Times. The very day that Kevin Cullen (Not buying Libya's ruse, Boston Globe, January 22, 2009: B1) was excoriating the lack of courage and common sense of the Globe Op-Ed page for carrying an article by Libyan leader, Khadafy, the New York Times carried a column by the same dictator (Muammar Quaddafi, The One-State Solution, New York Times, January 22, 2009: A31) urging a one state solution for the Israelis and Palestinians.
May that independence long continue.
Sent to Boston Globe
May that independence long continue.
Sent to Boston Globe
Geithner's Grilling
I searched in vain in your report on the confirmation hearings for Timothy Geithner for some questioning about the appropriateness of the use Shared Appreciation Mortgages (SAMs) as a solution to the ongoing financial crisis (Obama convenes financial team minus his chief economic spokesman, New York Times, January 22, 2009: A22).
SAMs are the perfect instrument to bail out lenders, prevent foreclosures and restore confidence. In a SAM, a government agency would join with the distressed hoemowner in meeting payments on the mortgage. There is no write-down so that lenders and derivative owners are made whole again. There is no foreclosure so that the individual homeowner stays in his home. There is no foreclosure so that neighborhoods are not hollowed out by a proliferation of empty homes.
There is risk to the government. As time goes by, the homeowner and the government build up equity in the home; the share of equity based on their proportionate contributions. There is however no guarantee that the total equity will exceed the homeowner's original purchase price before the house is eventually sold. In the best case scenario, both government and homeowner would recover their investments; in the worst case they would not. The risk of government losses might be reduced if the government part of the mortgage stayed with the house after an underwater sale, though that would reduce the attractiveness of the house to the new owner and consequently reduce the funds received by the seller. But this would work -- the government has infinite patience; early payoff is not a necessity.
Why don't we intensively discuss this solution, or something similar (as suggested by Andrew Caplin of New York University), as part of the recovery efforts that are being made? Perhaps it is just too late!
Sent to New York Times
SAMs are the perfect instrument to bail out lenders, prevent foreclosures and restore confidence. In a SAM, a government agency would join with the distressed hoemowner in meeting payments on the mortgage. There is no write-down so that lenders and derivative owners are made whole again. There is no foreclosure so that the individual homeowner stays in his home. There is no foreclosure so that neighborhoods are not hollowed out by a proliferation of empty homes.
There is risk to the government. As time goes by, the homeowner and the government build up equity in the home; the share of equity based on their proportionate contributions. There is however no guarantee that the total equity will exceed the homeowner's original purchase price before the house is eventually sold. In the best case scenario, both government and homeowner would recover their investments; in the worst case they would not. The risk of government losses might be reduced if the government part of the mortgage stayed with the house after an underwater sale, though that would reduce the attractiveness of the house to the new owner and consequently reduce the funds received by the seller. But this would work -- the government has infinite patience; early payoff is not a necessity.
Why don't we intensively discuss this solution, or something similar (as suggested by Andrew Caplin of New York University), as part of the recovery efforts that are being made? Perhaps it is just too late!
Sent to New York Times
Saturday, January 24, 2009
The Patriotic Bank of America
I was very taken with the remark by Mr. Kenneth D. Lewis (CEO of The Bank of America) that his company was being patriotic in closing its bid for Merill Lynch despite the latter firm's staggering losses (New York Times, January 17, 2008: B1, B8.)
I wonder how else a patriotic firm might act and how government might encourage patriotism -- though of course it should not need to do so.
First, a patriotic company would not lay off employees. Rather it would achieve cost cutting through the reduction of pay and hours for all employees in the company from CEO to the assembly line or office worker.
Second, a patriotic company would use slack time to give employees further training: training to do their own jobs more effectively, or cross training to help them learn other existing jobs, or learning in preparation for the jobs that will be needed if the firm takes a new strategic direction when the crisis is past.
Third, a patriotic company would work with, talk and listen to its employees to develop new products and new processes that would contribute to the long term effectiveness of the firm.
The role of government in the current crisis is to extend the availability of short-time unemployment benefits. This allows the worker on reduced hours to pick up an unemployment insurance payment for those lost hours.
Sent to New York Times
I wonder how else a patriotic firm might act and how government might encourage patriotism -- though of course it should not need to do so.
First, a patriotic company would not lay off employees. Rather it would achieve cost cutting through the reduction of pay and hours for all employees in the company from CEO to the assembly line or office worker.
Second, a patriotic company would use slack time to give employees further training: training to do their own jobs more effectively, or cross training to help them learn other existing jobs, or learning in preparation for the jobs that will be needed if the firm takes a new strategic direction when the crisis is past.
Third, a patriotic company would work with, talk and listen to its employees to develop new products and new processes that would contribute to the long term effectiveness of the firm.
The role of government in the current crisis is to extend the availability of short-time unemployment benefits. This allows the worker on reduced hours to pick up an unemployment insurance payment for those lost hours.
Sent to New York Times
Monday, January 19, 2009
India has a Soft Spot for Bush
India may indeed feel friendly toward the Bush Administration (India has a Soft Spot for Bush, New York Times Week in Review, January 11, 2009: 4)
But that approbation has been bought at a terrible price: the Nuclear Treaty between the USA and India. This horrendous treaty gives India a pass on the requirements of the nuclear non-proliferation treaty. They will receive nuclear assistance from the United States without having to comply. Back in September you recognized its problems (A Bad India Deal, September 30, 2008: A30) and correctly editorialized that passage of the treaty "would make it even harder to rein in Iran's (and other's) nuclear ambitions."
Your correspondent in Sunday's paper did your readers a disservice by failing to point out that with this treaty, the United States is contributing to the fragility of the nuclear world order.
Sent to New York Times
But that approbation has been bought at a terrible price: the Nuclear Treaty between the USA and India. This horrendous treaty gives India a pass on the requirements of the nuclear non-proliferation treaty. They will receive nuclear assistance from the United States without having to comply. Back in September you recognized its problems (A Bad India Deal, September 30, 2008: A30) and correctly editorialized that passage of the treaty "would make it even harder to rein in Iran's (and other's) nuclear ambitions."
Your correspondent in Sunday's paper did your readers a disservice by failing to point out that with this treaty, the United States is contributing to the fragility of the nuclear world order.
Sent to New York Times
Dawn Johnsen as head of OLC
The liberal blogosphere and the New York Times is delighted with the appointment of Professor Dawn Johnsen as the head of the Justice Department's Office of Legal Counsel.
They quote with approval her attacks on the legal reasoning (weak) to be found in the Torture Memoranda. They expect that she will act on these to investigate wrongdoing in the higher echelons of the administration.
I fear that this will not be the case. In February of last year, the Boston Globe quoted Professor Johnsen as saying "People who rely on [sic] good faith on an Office of Legal Council opinion should not be prosecuted even if it turns out that the opinion was wrong" (AG won't probe CIA on torture laws, Boston Globe, February 8, 2008: A 2).
It seems to me that her position is dangerously close to the Nuremberg Defense that "I was just obeying orders." On the face of it, her statement implies that she will not be taking steps to weed out the "bad apples" that proliferated in the top echelon of the Bush administration.
I do hope that I am wrong.
Sent to New York Times
They quote with approval her attacks on the legal reasoning (weak) to be found in the Torture Memoranda. They expect that she will act on these to investigate wrongdoing in the higher echelons of the administration.
I fear that this will not be the case. In February of last year, the Boston Globe quoted Professor Johnsen as saying "People who rely on [sic] good faith on an Office of Legal Council opinion should not be prosecuted even if it turns out that the opinion was wrong" (AG won't probe CIA on torture laws, Boston Globe, February 8, 2008: A 2).
It seems to me that her position is dangerously close to the Nuremberg Defense that "I was just obeying orders." On the face of it, her statement implies that she will not be taking steps to weed out the "bad apples" that proliferated in the top echelon of the Bush administration.
I do hope that I am wrong.
Sent to New York Times
Thursday, January 15, 2009
Wednesday, January 14, 2009
Monday, January 12, 2009
Thursday, January 8, 2009
Op-Ed: A better way to deal with CEO Compensation
Op-Ed: CEO Compensation
Cambridge Chronicle
It is no longer on the Chronicle's web page. Here it is:
860 words
Compensation in Organizations: A Modest Proposal
I think it is fair to say that we are approaching a crisis in capitalism similar to that at the end of the nineteenth century. At that time, major corporations were clearly being run for the benefit of their top managers (who were also usually their owners). The unparalleled greed by these beneficiaries led, in the near term to the trust-busting legislation of the first Roosevelt and in the longer term to the countervailing power of the Unions aided by the New Deal legislation of the second Roosevelt.
Since the 1970's, we have seen the repeal or non-enforcement of anti-trust legislation and we have seen the collapse of the labor movement as a viable countervailing force. As a consequence, the compensation of the executive echelon (and especially the CEO) has risen from 40 times that of the average employee in the 1970's to over 400 times that of the average employee today.
This change arises from two different trends: the inability of workers to capture much of the gains in productivity for themselves (this reduces the denominator in the CEO/employee pay ratio), and the practice of paying large bonuses (almost unrelated to performance; for example in the year that ATT lost $2.6 billion, the top management team gained $2.2 million in bonuses in addition to their regular salaries; and over five years Home Depot’s stock price declined over 7% while the departing CEO walked away with a staggering $210 million in bonus) to managers in order to attract or keep them in the firm. The collapse of union power has resulted in a Federal minimum wage that covers about 60% of poverty level wages for a family of four (a much lower percent in large, expensive urban centers such as Boston). The downsizing and outsourcing of the past decade has reduced the bargaining power of professional workers in the labor market. On the other hand, the labor market for CEO’s has stayed rather strong – this, as pointed out by David Levine (UC, Berkeley), is because it is a rigged market. Prices are set, not by free market forces, but by a firm’s compensation committee which is often made up of other senior executives with an “arms length” relationship with the focal firm. They may be arms length in terms of the firm’s competitors, but they are anything but arms length in the CEO market. They too are players in that game, so higher compensation for one means higher compensation for all! There is a second way in which the market has been rigged over the past five years: fraud. All those phantom profits in Enron, Qwest, and so on had as a consequence not-so-phantom bonuses to their executives. To “compete” in this rigged market for executives, other firms had to raise their compensation levels at the CEO and executive level. Even after the bursting of the economic bubble, we see little decline in the compensation of executives (in the past three years, the total cash compensation of the CEO of ATT has doubled from $2.2 million to $4.8 million; while the stock price almost halved).
Over the past few years there have been attempts by stockholders to bring an end to excessive compensation, but this has been limited thus far in its success. What is needed is a change in climate, a change in the culture of best practice in organization compensation. The current culture since the downsizings of the late 1980's and early 1990's has been a view that top managers of a firm matter and that everyone else in the firm is dispensable. This attitude is exemplified by the enormous bonuses (in the range of 100%+ of salary) given to executives compared to the modest bonuses of 8% of salary given to employees (if they get any bonus at all).
In an organization, everyone makes a contribution to the success of the organization. That contribution is of course greater for the CEO than for the janitor, or even for the research scientist at her bench. These differences in contribution can and should be reflected in different salaries: a living wage for the janitor and a good differential for the research scientist, and a large differential for the CEO. But when it comes to the bonus awarded for the firm’s performance, let equity reign. Let every member of the firm get the same percent bonus. Let everyone get 100% of salary or let everyone get 8% of salary. Reward differential contributions with different salary levels, but let the bonuses be an equal percentage. If this were adopted as best practice by the best firms and by the powerful institutional shareholders, I believe that the excesses we see today would be banished. This is a stronger set of best practices than a simple goal to restrict CEO compensation as it provides clear links between CEO bonuses and employee bonuses. The adoption of such a best practice will not solve all of our problems with compensation excess. But it is a start that will, in turn, lead the looming crisis in capitalism to recede.
Cambridge Chronicle
It is no longer on the Chronicle's web page. Here it is:
860 words
Compensation in Organizations: A Modest Proposal
I think it is fair to say that we are approaching a crisis in capitalism similar to that at the end of the nineteenth century. At that time, major corporations were clearly being run for the benefit of their top managers (who were also usually their owners). The unparalleled greed by these beneficiaries led, in the near term to the trust-busting legislation of the first Roosevelt and in the longer term to the countervailing power of the Unions aided by the New Deal legislation of the second Roosevelt.
Since the 1970's, we have seen the repeal or non-enforcement of anti-trust legislation and we have seen the collapse of the labor movement as a viable countervailing force. As a consequence, the compensation of the executive echelon (and especially the CEO) has risen from 40 times that of the average employee in the 1970's to over 400 times that of the average employee today.
This change arises from two different trends: the inability of workers to capture much of the gains in productivity for themselves (this reduces the denominator in the CEO/employee pay ratio), and the practice of paying large bonuses (almost unrelated to performance; for example in the year that ATT lost $2.6 billion, the top management team gained $2.2 million in bonuses in addition to their regular salaries; and over five years Home Depot’s stock price declined over 7% while the departing CEO walked away with a staggering $210 million in bonus) to managers in order to attract or keep them in the firm. The collapse of union power has resulted in a Federal minimum wage that covers about 60% of poverty level wages for a family of four (a much lower percent in large, expensive urban centers such as Boston). The downsizing and outsourcing of the past decade has reduced the bargaining power of professional workers in the labor market. On the other hand, the labor market for CEO’s has stayed rather strong – this, as pointed out by David Levine (UC, Berkeley), is because it is a rigged market. Prices are set, not by free market forces, but by a firm’s compensation committee which is often made up of other senior executives with an “arms length” relationship with the focal firm. They may be arms length in terms of the firm’s competitors, but they are anything but arms length in the CEO market. They too are players in that game, so higher compensation for one means higher compensation for all! There is a second way in which the market has been rigged over the past five years: fraud. All those phantom profits in Enron, Qwest, and so on had as a consequence not-so-phantom bonuses to their executives. To “compete” in this rigged market for executives, other firms had to raise their compensation levels at the CEO and executive level. Even after the bursting of the economic bubble, we see little decline in the compensation of executives (in the past three years, the total cash compensation of the CEO of ATT has doubled from $2.2 million to $4.8 million; while the stock price almost halved).
Over the past few years there have been attempts by stockholders to bring an end to excessive compensation, but this has been limited thus far in its success. What is needed is a change in climate, a change in the culture of best practice in organization compensation. The current culture since the downsizings of the late 1980's and early 1990's has been a view that top managers of a firm matter and that everyone else in the firm is dispensable. This attitude is exemplified by the enormous bonuses (in the range of 100%+ of salary) given to executives compared to the modest bonuses of 8% of salary given to employees (if they get any bonus at all).
In an organization, everyone makes a contribution to the success of the organization. That contribution is of course greater for the CEO than for the janitor, or even for the research scientist at her bench. These differences in contribution can and should be reflected in different salaries: a living wage for the janitor and a good differential for the research scientist, and a large differential for the CEO. But when it comes to the bonus awarded for the firm’s performance, let equity reign. Let every member of the firm get the same percent bonus. Let everyone get 100% of salary or let everyone get 8% of salary. Reward differential contributions with different salary levels, but let the bonuses be an equal percentage. If this were adopted as best practice by the best firms and by the powerful institutional shareholders, I believe that the excesses we see today would be banished. This is a stronger set of best practices than a simple goal to restrict CEO compensation as it provides clear links between CEO bonuses and employee bonuses. The adoption of such a best practice will not solve all of our problems with compensation excess. But it is a start that will, in turn, lead the looming crisis in capitalism to recede.
Restore the Senate's Treaty Power
It is tempting to simply comment on the rich irony that two of the architects of the Bush administration’s extra-constitutional activities are to be found in your pages defending the constitutional process of treaty ratification (John R. Bolton and John Yoo, Restore the Senate’s Treaty Power, New York Times, Monday, January 5, 2009: A19).
More important however is their attempt to wrap ideological preferences into a constitutional requirement. Each of the treaties to which they object involve international constraints that may be to the disadvantage of corporate America. They do not mention treaties like NAFTA and the South American free trade deals that have been avidly sought by corporate America
The fact is that we live in a world much different from that of the founding fathers – a world that is much more reciprocally interdependent than was 18th. Century America, In that world American exceptionalism and independence affected few other countries. Today as we have seen, America needs to work collaboratively with the whole world.
The last eight years have shown how much America would have gained had it been part of the International Criminal Court. In such a world, John Yoo would not have dared pen the infamous torture memoranda; America would not have lost its reputation for justice and integrity. Furthermore, if we had adhered to the Kyoto accords, America would not be eight years behind in adopting fuel efficient cars (and Detroit's consequent collapse) and in the development of new technologies to help prevent global warming (which might have been Detroit's lifeline).
In the present world, the treaties disdained by Bolton and Yoo are the foundation upon which we must build new relationships with the rest of the world.
Sent to the New York Times
More important however is their attempt to wrap ideological preferences into a constitutional requirement. Each of the treaties to which they object involve international constraints that may be to the disadvantage of corporate America. They do not mention treaties like NAFTA and the South American free trade deals that have been avidly sought by corporate America
The fact is that we live in a world much different from that of the founding fathers – a world that is much more reciprocally interdependent than was 18th. Century America, In that world American exceptionalism and independence affected few other countries. Today as we have seen, America needs to work collaboratively with the whole world.
The last eight years have shown how much America would have gained had it been part of the International Criminal Court. In such a world, John Yoo would not have dared pen the infamous torture memoranda; America would not have lost its reputation for justice and integrity. Furthermore, if we had adhered to the Kyoto accords, America would not be eight years behind in adopting fuel efficient cars (and Detroit's consequent collapse) and in the development of new technologies to help prevent global warming (which might have been Detroit's lifeline).
In the present world, the treaties disdained by Bolton and Yoo are the foundation upon which we must build new relationships with the rest of the world.
Sent to the New York Times
Friday, January 2, 2009
Budget Crises
Where is the Congress when we need it (In Budget crises, California
and other states reluctantly halt road projects, New York Times,
December 23, 2008: A16)?
Everyone agrees that the coming stimulus package will involve money
for the States for infrastructure investment. Why isn't it already on
the way? Delaying projects involves extra expenses in winding them
down and restarting them.
States also have other expenses: aid to towns and cities, human
services, education and policing. These are all in jeopardy.
Congress should reconvene immediately and pass a bill that gives each
State about 20% of its fiscal 2007 budget. That will get the
stimulus package off to a good start.
Sent to the New York Times
and other states reluctantly halt road projects, New York Times,
December 23, 2008: A16)?
Everyone agrees that the coming stimulus package will involve money
for the States for infrastructure investment. Why isn't it already on
the way? Delaying projects involves extra expenses in winding them
down and restarting them.
States also have other expenses: aid to towns and cities, human
services, education and policing. These are all in jeopardy.
Congress should reconvene immediately and pass a bill that gives each
State about 20% of its fiscal 2007 budget. That will get the
stimulus package off to a good start.
Sent to the New York Times
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