Consolidation Notes -- 12

Well, it's almost a year since I wrote on School Consolidation that

My Upstate New York village has had a school for quite a while; it may not have a school for much longer.

Later I listed some Consolidation links, and some more, and then some data about Upstate NY Demographics and School Consolidation, and more Consolidation News. Then I thought about Khansolidation as an alternative, but more Consolidation News kept coming from many states. Then New York passed an actual budget and I wrote a few Budget Notes; here and in other states there's a connection between Budgets, Consolidations, Charters. The budget looked very bad for 2011, but Colgate helped: Colgate v. Consolidation -- maybe. For now. And then in fall we had an author come talk about it, and my reaction was Consolidation and "Hollowing Out the Middle".

Since then we've had a few months with no particular merger-movement, but that's over: on Wednesday this week we saw School Boards Meet to Discuss Merger Study. They met at the Morrisville Stadium's Hospitality Center, which (as the tour video says) has "kind of a sports bar feel to it"; an amusing choice. For someone like me, it's a choice to prompt meditation on education as a consumption good, at least as much as it is a source of skills and knowledge (and a status good, and so on). The main purpose of the meeting, it seems, was to go around and around the table of superintendents and school board members, asking for questions to be addressed by the study: by the time nobody had any more to ask, there were 31, and then the same people were asked to prioritize the questions. "You have 40 points; choose one question that gets five points, and apply the rest of your points as you please except that you shouldn't give more than five points to any question."

Questions included a variety of topics -- I don't have the phrasings right because they were edited as I scribbled, but there were items resembling "How does merger affect transportation?", "Would class size change?", "How will state aid affect the new district?", "What will be the impact on the community's voice in governance?", and "How can we get the community to feel involved?"

The questions as questions were not objectionable, but it wasn't really the way I'd do it. I'd like to start with a list of basic assumptions about the next 10, 20, 50 years, like declining upstate population and enhanced technology and; for each of these assumptions we'd have a list of uncertainties. For example, Colgate's baby boomers, my generation whose kids are mostly grown, are retiring and being replaced with younger families -- the nursery school is turning kids away and we may be at the bottom of enrollment rather than locked into continuing decline. But that's not certain; all we know is that each of us has some assumptions, and it would be good to list them and list the questions about them. (Will Dodd-Frank, and other factors pushing finance-industry bonus packages downward, result in a permanent decline in state aid?)

Then I'd have a list of the groups of affected people, starting of course with current students and current teachers and their subdivision into overlapping subgroups. (E.g., athletic groups overlap with theatric groups overlap with Model UN; at the same time we have farm kids and local-business kids and academic's kids from Colgate and from Morrisville, and in "Hollowing Out The Middle" terms we have the kids who are likely Leavers and the kids who are likely Stayers and....) For each group, I'd like a list of what they put into the system, if that's distinctive, and what they get out of it; then for each of these a list of descriptions of how this may change if there is a merger, and how it may change if there is no merger. And I'd throw in the effect of uncertainty: does merger circumscribe future flexibility, or enhance it? (I suspect the merger, as a multi-million multi-year commitment, would necessarily make it hard to make future choices, but I could be wrong. I usually am.)

In effect, we want voters to have two crystal balls, one showing the after-merger view and the other the after-no-merger view; we can't quite do that, but we can try. And then I'd expand the choices a bit: what if we set up a charter school? A STEAM school (Science, Technology, Engineering, Arts, Mathematics)?

One which tried to use...well, never mind. We'll see.

Or then again, maybe not.

update:Our Superintendent reports at The Consolidation Fesibility Study Begins.

Afghanistan & The Drake Equation

I spent last weekend in NYC at the singularity summit, listening to very bright geeks of various kinds talking about recent/near-future changes in technology, in the rate of change of technology, in the funding and organization of technology, and thus how everything may soon (unknown but likely-small number of decades, say) become very very much better/worse. (See listing here.)And a few speakers, notably cosmologist Max Tegmark, talked about the Drake Equation and how the fact that we haven't heard from other civilizations, even though we now know that extrasolar planets are common, means there's a roadblock somewhere: either the evolution of life and intelligence is unusual, or there's something up ahead of us that civilizations tend not to survive, like maybe the Singularity itself. (I think he's oversimplifying; I'd call the roadblock theory highly probable but it's not the only explanation for silence.) Then I came back to Hamilton in time to walk up the hill to listen to journalist Kim Barker talk about Afghanistan and how the "good war" went bad...how she filled a notebook, some years back, with interviews and background with seventeen people and as of this year, they're all dead, and the Obama announcement that we are definitely out by a particular date means that counter-insurgency can't work. (Copies of her Taliban Shuffle book were stacked up in the back of the hall, but the last time I bought signed books at a Project Afghanistan lecture the author was killed soon after and well, I dunno, I didn't feel like doing that; so I downloaded the Kindle version and started reading it on my phone, while waiting for the lecture to start. Maybe I should have asked her to sign my phone.)

For me, there really is an existential threat in here. I can only repeat what I wrote almost five years ago:

The situation is bad. Still, I don't think we're in trouble yet. Trouble is when we have half a million or so dead Americans and a tens of millions dead around the world. Big trouble is lots, lots worse than that. You don't think it can happen? You think terrorism is an overhyped nuisance? Well, I sort of agree: it can't happen now, at least I don't think so, and terrorism now is in some ways an overhyped nuisance. I'm talking about a timeframe that probably doesn't start for ten years, and might not start for thirty. But it will start. In the thirty-one years since I started working on my PhuD in computer science, Moore's Law has increased computer bang-for-the-buck by a factor of approximately one million: 20 doublings. People haven't changed. In the next thirty years, technology will go on getting more so, and up to a point (past which I have no predictions) people will go on not changing. That's the problem.

And Gaddafi was killed this week; probably a good thing, just as Hussein's death was probably a good thing, but not exactly a guarantee that tomorrow in Libya will be a better day than yesterday. I'm glad that Obama has continued Bush's Big Bang of disrupting dictators, glad that our investment in drone technology is paying off, really worried about his promise to get out, really really worried that (apart from such promises) we're in Bush's third term in the bad ways as well as the good ways -- in particular, attacking troops and citizens of a foreign country without Congressional authorization and pretending that it's not legally a "war", apparently on the ground that he's not putting troops on the ground. Yeah, right. And it also won't be a war when vastly improved drone tech spreads to many countries including Pakistan, North Korea, Iran, etc., up to the point when some descendant of Sunrise I in the air or perhaps Spray in the water ( Underwater Robot Makes History...Spray has a range of 6,000 kilometers, or about 3,500 miles, which means it could potentially cross the Atlantic Ocean and other ocean basins...) pays us a return visit, with payload upgraded far beyond what Pakistan's nukes can now do.

Near the start of the Singularity Summit, PayPal founder/billionaire Peter Thiel was worrying about the slowdown in innovation in the "developed" countries, about the way that so much of our (very real, really excellent despite current difficulties) global improvement statistics simply reflect copying of our tech into China and India and others. And I was thinking that this is worse than he thinks it is, because it's not just about economics: it's about the fact that the (moderately) liberal democracies have a technological edge which we need them to keep. And maybe they will, maybe they won't. Thiel believes regulation is holding us back, that a lot of what we now depend on is stuff which we wouldn't be legally able to develop now if we hadn't already developed it -- well, I believe that too. Will we keep the edge we need? Maybe.

Still, I have here an actual physical copy of Pinker's The Better Angels of Our Nature: Why Violence Has Declined and it does suggest that maybe my statement above that "People haven't changed" is oversimplified. Even with WWI and WWII, and the Nazi and communist slaughter+starvation of scores of millions, people in the 20th century were several times less likely to die violently (that's counting starvation-by-government as violent death, as it should) than the people whose bones tell us about life and death thousands of years back, or the hunter-gatherer societies we've studied more recently. (See Will Wilkinson's commentary, which I pretty much trust.) Of course Neolithic violence was not an existential risk; the 20th century brought us lower means but higher standard deviations, so to speak. We needed Petrov to be there, doing his job; that did not apply to any previous century. If things are getting better, maybe we can survive without future Petrovs, or maybe there will always be one around when we need him (or her).

Or then again, maybe not.

Footnote: I said above that the "roadblock theory" wasn't, I think, the only explanation for interstellar silence in a galaxy of many planets. Clearly one possibility is that species with enough "aggressiveness" to proceed to interstellar activity have enough real aggressiveness to destroy themselves. I'll list four others; I'm sure there are many. First, most attractive in a way, would be a moral dynamics sort of explanation: the species which develop morally (to the point of non-interference with primitives like us) are exactly the ones which don't wipe themselves out. Next would be a physics explanation: expansionist species discover physics which we haven't found yet, physics which lets them create bubble universes that it's easy to expand into so they never bother with the actual galaxy. Next would be a simulation-version of that: expansionist species wind up discovering that they can simulate the universes they want, and upload themselves into the simulations...same thing. And finally, for now, would be the now-familiar notion that we are in a simulation -- there are no other species not because we're bound for destruction but because we're the one being simulated. (And as I was typing this, my daughter came to say she'd finally finished the Collected Stories of Arthur C. Clarke; we're probably in one of his universes. Should that be a reassuring thought? "Cancel Programme GENESIS"..."Overhead, without any fuss, the stars were going out."..."The crusade will reach the vicinity of Earth about the year 2050." So it goes.)

Consolidation and "Hollowing Out the Middle"

The logic of rural school consolidation is pretty simple, I think:

• Conventionally-structured public schools don't work well at small sizes (e.g., my daughter's in Latin 3, with fifteen students. Will there be at least ten for Latin 4? If not, it won't be offered. Advanced science courses, same deal...etc.)
• Rural small towns are getting smaller, so what used to be big enough isn't any more, or won't be soon -- I've already talked about demographic projections for my own area.

There are good reasons for the shrinkage: as Ryan Avent of the Economist notes in a Kindle book (location 618) "doubling county-level employment density raises productivity 6%...over half of the variation in output per worker across US states can be explained by density." Other economists find higher figures, especially for "skilled cities", i.e. places that high achievers tend to go. But take the 6% as a conservative estimate -- Madison County, NY is more than 500 times less dense than Manhattan. That's nine doublings, and 9*6% is more than a 50% increase in productivity, as if you'd added a couple of decades to a career. Quite an incentive, usually expressed in the simple form of job opportunities found mainly in the cities. It's a fundamentally intractable problem -- or is it? There are several responses possible:

• Go with the flow: consolidate, at least for high schools where the advanced-course shortage is an issue.
• Tinker around the edges: merge some administrative functions, some transportation costs, maybe kill the art class, hope that we can last a few more years (until my daughter graduates, perhaps -- she's my youngest, and my elder granddaughter just started preschool in NYC.)
• Look at unconventional structures; after all, the limiting case of smallest size is home schooling, and it doesn't seem that home schooling needs to be academically harmful, e.g. this week's research word from Canada is that "Structured homeschooling may offer opportunities for academic performance beyond those typically experienced in public schools". I doubt that home schooling would work outside a self-selected group, but it indicates that small size in itself need not kill academics, and I've noted before that in various states recently, consolidations and (mostly smaller) charters have seemed to go together. I like the charter idea; somewhat looser rules enabling a number of things like Khansolidation. Or maybe
• Push back against the demographic trends: figure out why these towns are shrinking, and get them to grow again -- that's the path suggested by Carr and Kefalas' Hollowing Out the Middle: The Rural Brain Drain and What It Means for America. That's what this post is mostly about: Carr and Kefalas have various suggestions, and Carr will be in town this week.

On August 31, our school superintendent, Dr. Bowers, blogged that New York State Releases Money for the Merger Study; in a meeting that same day she spoke about the Hollowing-Out book, so I promptly downloaded the Kindle edition to read on my cell phone (I've really started to like having a few books always with me.)

I don't think that there's much resemblance between the really-truly-rural community of "Ellis" in the book, and the semi-rural village I live in where the major employer is Colgate University, followed by the hospital where my daughter was born -- a lot of our kids are the children of professors, doctors, administrators of various kinds, and so on. There's some resemblance between Ellis and us, though, and it's crucial to the consolidation issue: both are shrinking and aging as young people, especially the "Achievers" and "Seekers", go away at the end of high school and mostly don't become "Returners", i.e. they don't come back except on holidays. How to fix this?

Carr and Kefalas note as they close that "The policies and programs for saving small towns run the gamut" but are not sufficient...

• they want small towns "to equalize their investment across different groups of young people and to tie education and training for Stayers more closely to...technical computer-based skills."
• They want small-town high schools to "avail themselves" of community college programs, which should reduce their focus "on those students who are likely to pursue an academic track" and do more about wind energy and welding.
• There's an important note in the middle of this, which I want to emphasize:

  graduates...mostly flock to metropolitan areas because of the higher returns on education found there, and because this is rational behavior, we should not try to stop them.

• Instead, they want to emphasize the human capital represented by those who are not Achievers. Specifically,

• education should be transformed to funnel young people into vocational and preprofessional training that will fill the holes in the countryside's labor force.

  (These holes are in "accounting, business, nursing and medical technology...and computer science."
• They want to encourage immigration, but with "tighter oversight by state and federal regulatory bodies" along with advertising campaigns to reduce bias and segregation.
• Finally, they want federal money for infrastructure/clean energy/organic farming.

Well, that's the plan -- there are parts of it that I could partly get behind, I guess. One problem is that the first items sound like they're describing the BOCES service, which we already use:

An example of programs that BOCES might offer are Academics Support, Auto Body Repair, Auto Technology, Building Maintenance, Business Computer Technology, Carpentry, Computer Repair and Networking, Cosmetology, Criminal Justice, Culinary Arts, Early Childhood Education, Electrical Wiring Technology, Forestry & Conservation, Gas/Diesel Mechanics, Life Skills, Medical Careers, New Vision Health, Nursing Assistant, Practical Nursing, Small Animal Care and Visual Communications.

The school we might merge with does it more the way Carr and Kefalas recommend, with BOCES supplemented by dual-credit community college coursework which can indeed be very "practical." One of my sons took BOCES courses. Another took Colgate courses, but those were in ancient Greek -- not a Carr&Kefalas recommendation. Both now live in NYC. I have no objection to these recommendations, but this is what we're already doing. I don't see the evidence that it works to prevent "Hollowing Out." I do favor substantially increased immigration on various grounds, and I'm disturbed by its recent shrinkage, but that's not something a small community can do a lot about. Infrastructure, ditto. I think I'll skip the clean energy and organic farming issues. Overall, I don't see much help here.

Well, maybe there's not much help to be had. I do think there's some reason to expect that telepresence (in medicine as I've written before, in education, in manufacturing, in getting things done generally) will reduce the difference between Here and There for employment purposes, and that will make cheaper locations with better scenery more attractive. But not for some years -- an unpredictable number of years. Meanwhile, I'm thinking about possible ways to restructure schools, and I suspect that this would require reformulation as a public charter.

Update: Well, I've heard Carr speak (as did my daughter's class, earlier in the day.) He commented that this village is more "robust" than the ones he's worrying about; he commented on the central role of the school in small-town existence, and what a disaster a school's disappearance can be. I was surprised by the extent to which it turned into an anti-college talk, arguing that college graduates are overqualified for a large fraction of near-future jobs and that pushing everyone towards college is doing them a disservice. He said that average college debt was $50,000 (and he gave the same figure to my daughter's class, so I don't think I misheard.). This really startled me so I looked it up and find that Consumer Reports says

The average total of debt per student in the class of 2011 will be $22,900.

There is some confusion here; CR agrees that it's rising (but still a good investment), but earlier figures from the NYT say Average College Debt Rose 6 Percent to $24,000 in 2009 - NYTimes.com. I think the difference is that CR is reporting actual average debt per student (for all students) whereas the NYT had been reporting average debt per student-with-debt (a majority of all students, but by no means all.) I'm not sure of that, though. I am, however, reasonably sure that Carr's figure is quite drastically wrong, which doesn't help his credibility. (My credibility is absolute; I never make mistakes, which is why this blog does not exist.) I do think some of what he said is good: if a region-based training program with certification can connect new high-school graduates with employers, or even encourage employers to move in, that's great. BOCES is a good thing. Welding is a good thing. But robotic welding is growing fast, and I don't think that a career as a welder is a good bet any more. Robotic health care is not as far along, and Carr also talked about certification in health care. Mostly, though, I expect that these certified workers are going to find jobs in higher-density areas...how many certified health-care workers is a small town going to absorb? Overall, when it comes to disappearing schools, I don't think that "Hollowing Out the Middle" has much help to offer. A little, especially for states that don't already have something like BOCES, but not much. Too bad. Some of my daughter's classmates apparently summarized his talk to them as "don't go to college, stay at home until you're thirty, work at McDonald's" -- they simply didn't believe in the jobs he spoke of. That's a little unfair, but I'm not sure that it's a lot unfair. I don't believe in those jobs (as local jobs) either.

Health Care and the Experts: Financial Analogy?

Some co-author or other saw the Myers (fragment-of-a-) Health Care Plan which I put up last Easter, which started with

1. Allow unlicensed health care, wherever it's clearly labeled as such; it won't get public support but people can choose to spend their money on it. The argument against this is apparently that people will make bad choices. Yeah, some will, probably including me and you. So? I've never understood the way some people believe that they (or those they select) can make good choices for others; in fact I'm moderately cynical about licensure requirements as they are now structured, whether for medics or morticians or cosmetologists.

His comment says

I came to look at Chelyuskin but chanced upon healthcare. Your item 1 is the only time I can remember when I totally disagree with you. You say: Some people will make bad choices including you and me. This equates mistakes by poor slobs who lost their houses and livelihoods in 2008 with "mistakes by TJM," that same TJM who, I suspect, belongs to that tiny minority who made money in 2008, because he has both sharp analytical mind and enough money to hire a top-notch money manager. Besides, this just won't work politically: as soon as a poor slob somewhere takes her child to an unlicensed healer, and the child ends up with an amputated limb, the outcry for regulation will be irresistible and, IMHO, justified.

I wasn't sure how to respond to this money-management analogy, and I let it go; I'll give it a try now...

I'm astonished -- and encouraged, because I would not have expected item 1 to be the only total disagreement even in this post, much less in general. And of course it's possible that I'm totally wrong...but I haven't changed my mind yet. Let's take it one step at a time.

The first point of disagreement, a very big one: No, I didn't make money in 2008. In fact in September 2009 I said

I haven't posted for a long time, but it's not that I haven't made any mistakes. Indeed, I've participated to some extent in one of the biggest mistakes of my lifetime -- the market crash of 2008.

Personally, I did see the bubble as such, earlier than some...

In fact I lost much less than I might have because (like my "top-notch money manager" -- I must remember to tell him about that description) I was expecting a downturn at some unpredictable point Real Soon, a small-to-middling wealth-effect recession whenever the bubble popped, and also of course because I avoided real estate. But I did lose, because we weren't expecting what happened. Was this an issue of expertise, in any useful sense of that term? People with far greater expertise than mine, including both the then-current and currently current heads of the Federal Reserve, were denying the problem -- even denying the limited problem that I saw then. (Indeed, since a big part of the problem was excessive risk-taking -- i.e. excessive confidence -- I think those public statements contributed to our still-continuing doldrums in addition to the policy errors I believe they made.) There were indeed a very few people who actually made money by understanding a part of what was going on: a short-seller named Eisman was quoted in late 2008 in The End Of Wall Streets Boom

“We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.

S&P denies that; I haven't heard any coherent excuses for the way they performed as the Supreme Appointed Financial Experts of the American economy (co-equal with Fitch and Moody's, of course). I dunno. Still it's my understanding that Eisman made money whereas on the average, people with more to lose (them with money managers) lost more, disproportionately more, than those with less. That's a Good Thing, as far as it goes -- it didn't go as far as it should because of Too-Big-To-Fail, i.e. some high-income people had their losses made good at the average guy's expense -- but it doesn't fit well with a belief that experts protect us from making disastrous mistakes. As I said in that Sept 2009 post, "To a disturbing extent, I think expertise in (macro)economics has been discredited. I don't believe this is adequately answered by Greg Mankiw's [remarks about economics being non-predictive]". I agree with parts of Brad DeLong's remarks a few days ago in What To Do About Jobs? that

given that most of what we macroeconomists were saying in 2007 was wrong, what, if anything, do we have to say today? Bear in mind that what turns out to have been wrong was pretty much everything that had been done since 1950....

Well, with part of it. As the the Economist (Ryan Avent) said last week,

The narrow point to focus on, however, is that the story in which the housing bust gave us the recession, because America suddenly had lots of houses and workers it couldn't use doesn't appear to fit the data. The economy muddled on despite the housing bust for two years, at which point, for some reason, all sectors suddenly decided that the outlook for growth was much worse than they'd previously believed.

As he says, that fits the Scott Sumner story I've blogged about before, which can be read as very conventional textbook macro and which blames most of the recession on the experts of the Federal Reserve, who simply did the wrong thing in a big way. (There's still room for other blames, of course.) On a more micro-economic level, I'd say that expert stock-picking advice is also of dubious value: I'm a moderate believer in a very weak form of the efficient-market hypothesis, and if this country were to adopt a deduction-free progressive consumption tax system (which it should do on grounds of efficiency/fairness/sanity) I would almost certainly stop using a money manager -- the money-manager's value is rather strongly dependent on his understanding of a complex system that really shouldn't exist. (Also dependent on the fact that his services are mostly deductible, i.e. you're helping to pay. Thanks!) What would I do then? I would switch to a passive management pattern, which in pure investment terms is at least as good and likely better:

In the United States, indexed funds have outperformed the majority of active managers, especially as the fees they charge are very much lower than active managers. They are also able to have significantly greater after-tax returns.

Most of my decisions would then have to do with asset allocation:

The conclusion of the study was that replacing active choices with simple asset classes worked just as well as, if not even better than, professional pension managers. Also, a small number of asset classes was sufficient for financial planning.

Hooray for Malkiel! And for Samuelson and Bogle!. This doesn't prove that financial expertise is worthless, but I don't think it has the kind of value you're suggesting.

Let me put it this way:

• Failure to consult such an expert now and then is really stupid. There are a lot of things a financial specialist knows that are not intuitive; important things.
• Many of these are routine things, how to file this-and-that.
• Many of these are simple things you really ought to learn yourself (why it probably makes sense to own more bonds and fewer stocks as you get older, etc. etc. etc.)
• Some of the others are simply not true, and we don't know which until it's too late (why the top tranche of a pile of mortgage-backed securities deserves its AAA rating, etc. etc.)
• Unlimited trust for your expert is not wise.
• Compulsory obedience to your expert is a really really bad idea, which fortunately is not employed except for the way that S&P and the other experts are embedded in the laws about risk ratings, which effectively required banks to invest in disastrous mortgage-backed securities...
• Perhaps the most important financial skill you can have is that by which you evaluate an expert; nobody else can do this for you, but certification and track-record-checking and recommendations are all important.

Your analogy between medical and financial services is not one that would have occurred to me, but it may have merit. Failure to consult an actual medical expert now and then is really stupid. Medical specialists do indeed know a lot of unintuitive things. Many of these are routine. Many are things you should learn for yourself. Many are false. Trust is a good thing, unlimited trust is a bad thing, compulsory obedience is a really bad thing. Certification and track-record and recommendations...yup. Okay, I'll take the analogy. :-)

Seriously, I think you're saying, effectively, that

If there's one seriously bad (but non-fatal) outcome from an unlicensed healer, public outcry will correctly push us back to requiring licensure

It seems to me you're forgetting something: the licensed doctors we have now are responsible for some 100,000 fatal errors per year (perhaps a little less, perhaps a lot more; see Wikipedia.) Those deaths are on top of a death-toll which I believe to be very much larger: deaths caused by the FDA's prevention of innovation. I'd suggest reading one article, Theory, Evidence and Examples of FDA Harm by Tabarrok and Klein:

Three bodies of evidence indicate that the costs of FDA requirements exceed the benefits. In other words, three bodies of evidence suggest that the FDA kills and harms, on net...

Or you might prefer The FDA: Neither Safe nor Effective ending with a Friedman quote:

“‘The FDA has already done enormous harm to the health of the American public by greatly increasing the costs of pharmaceutical research, thereby reducing the supply of new and effective drugs, and by delaying the approval of such drugs as survive the tortuous FDA process.’ When asked, if you could do anything to improve health in America, what would you do? Friedman replied: ‘No more licensing of doctors. No more regulation of drugs. Not of any kind. Period.’”

Actually, I don't quite agree, but my position is a whole lot closer to Friedman's than to anything that's likely to happen, and I'd accept his as being substantially better than what we have now. (And if we magically went to his, I like you and most others would go right on consulting a conventional MD -- but the MD I consulted might not be in the US. It might depend on what happened to the insurance industry, which would now be free to sell the sort of insurance policy that I'd want to buy.)

Or then again, maybe not.

Update:Stiglitz, Nobel Prize-Winning Economist, Says Federal Reserve System 'Corrupt' according to the Puffington Host:

To Stiglitz, the core issue is that regional Fed banks, such as the New York Fed, have clear conflicts of interest -- a result of the banks being partly governed by a board of directors that includes officers of the very banks they're supposed to be overseeing.

The New York Fed, which was led by current Treasury Secretary Timothy Geithner during the time leading Wall Street firms like Citigroup, JPMorgan Chase, AIG, and Goldman Sachs were given hundreds of billions of dollars in taxpayer bailouts, presently has on its board of directors Jamie Dimon, the head of JPMorgan Chase. He's been there for three years. He replaced former Citigroup chairman Sanford "Sandy" Weill.

"So, these are the guys who appointed the guy who bailed them out," Stiglitz said. "Is that a conflict of interest?" he asked rhetorically.

That really might explain the Fed's behavior... in finance as in medicine, the incentives of regulatory capture and crony capitalism apply. People who exert government's influence are always going to be pushed towards exerting it in favor of those who can exert influence on their behalf, and regulation -- especially licensure, as the power to say who can't compete with you -- is always going to be a Very Good Thing from the point of view of those who have a seat at the table. They may even sincerely believe that they are the only true experts, and that those who do things differently are simply not good for the public. (Or then again, maybe not.)

Two Hundred Trillion Dollars

There are some silly songs on Youtube about the $46,000 debt we're giving each new child at birth; the songs are supposed to make you feel guilty about what we're doing to our children, and I think they're supposed to energize you against the debt-ceiling rise and for the balanced budget amendment. Well, the debt ceiling is stupid, and the balanced budget amendment is a really bad idea, and $46,000 is a ludicrous figure; the correct figure, the figure that the average kid needs to pay (or pay interest on, or pass on with accrued interest to the next generation,) is probably well over half a million. Nobody can know exactly; it depends on future growth of expenses and revenues and population, but $46,000 is a very small fraction of the total.

In April 2010, after the health-care bill's passage, I wrote a "One Hundred Trillion Dollars" context post in which I quoted the Dallas Fed:

Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent. ... all we would have to do to fully fund our nation’s entitlement programs would be to cut discretionary spending by 97 percent....defense and national security, education, the environment ... All of them [forever]

Today I noticed on Yahoo a more up-to-date and more complete and therefore more scary view of the same concept, from BusinessWeek, in Why the Debt Crisis Is Even Worse Than You Think:

A more revealing calculation is the CBO’s measurement of what’s called the fiscal gap. That figure is conceptually cleaner than the national debt—and consequently more alarming. Boston University’s Kotlikoff has extended the agency’s analysis from 2085 out to the infinite horizon, which he says is the only method that’s invulnerable to the frame-of-reference problem. It’s an approach used by actuaries to make sure that a pension system doesn’t contain an instability that will manifest itself just past the last year studied. Years far in the future carry very little weight, converging toward zero, because they are discounted by the time value of money. Even so, Kotlikoff concluded that the fiscal gap—i.e., the net present value of all future expenses minus all future revenue—amounts to $211 trillion.

How does that work? Well, let's think about the Smith family and the Jones family, each expecting the same future expenses spread out over time. Joe Jones intends to pay as he goes; he hasn't borrowed anything. Sam Smith has borrowed enough money from a bank to fund an investment account which will pay exactly the same expenses. In fact, aside from the issue of bank profit, he had to borrow exactly the net present value of those future expenses. (He has a triple-A rating, of course. For now.) You can think of various ways that they're in different situations, but the Smith and Jones families are basically comparable: the payments on Smith's loan will not over time be appreciably different from Jones' direct expenses. So we can think of both of them as having the same financial future: if one is in trouble, they both are. And right now, the US has the same financial future as if it had made no unfunded promises but had borrowed a grand total of $211,000,000,000,000.00. So far.

Is that exact? No, of course not. Things might not be quite that bad, they could be even worse: as the article says, the calculation is quite sensitive to assumptions about future events and policy. But it's accurate enough to say that the "debt" is not what we should worry about; we should worry about the "fiscal gap".

Of course, if you worry about the debt, then it makes sense to talk about the deficit: $850 billion dollars last year. What if you're worried about the fiscal gap? Does the deficit become irrelevant? Yes, really; as Kotlikoff says:

The gap was $205 trillion last year, measured in today’s dollars. That’s an increase of $6 trillion. ... Hence, the real deficit we should be worrying about is more than six times larger than the $850 billion official deficit capturing all the attention.

In other words, Congress and the president’s administration could agree to run a balanced budget, making this year’s official deficit zero, and the nation’s true indebtedness would still rise by $5.15 trillion!... the main reason is that we are one year closer to having to pay 78 million baby boomers roughly $40,000, on average, per year in Social Security, Medicare and Medicaid benefits. Because the fiscal gap is a discounted present value, one year makes a big difference.

If you think back to the Smith and Jones family, and imagine the fiscal gap as an implicit debt, then the $5 trillion is mainly the result of our failure to pay even the interest on the $206 trillion we owed last year -- we do have a really good interest rate as long as we keep the AAA rating, but it's not zero.

So, should we balance the budget anyway, even if it's inadequate to do so? No -- not in years with high unemployment. I'd agree with Calculated Risk: Debt Ceiling Update

A politician can say "We should have a balanced budget". It sounds good, but why aren't they challenged about operating vs. capital budgets? And about business cycle spending (obviously revenue falls during a recession - and spending increases)?

What they really want is a balanced operating budget over the business cycle. You can't put that in the Constitution. It requires effective government and constant vigilance.

But even capital vs. operating budget doesn't quite do it for me: I want the fiscal gap, over the business cycle, to remain a limited multiple of GDP. Fifteen times GDP? Okay, fifteen times GDP. (It would be nice to shrink it.) But don't let it keep growing (as a multiple of GDP) from one business-cycle peak to the next.

And with all that, should my taxes be raised? Yes, emphatically so -- my taxes should be raised as part of a plan to deal with the fiscal gap. I can and should pay more taxes than most people; that part's understood. I'm not in Kerry's league for lifetime income, not even in Obama's, but I can pay more taxes than I do -- it won't even cut my consumption until taxes get quite a lot higher. What I don't think most raise-taxes people understand is that even though a fairly substantial tax hike won't be a "hardship", won't seriously cut my consumption, it will cut my reinvestment. It has to. So it will reduce the money available to future generations of taxers; in fact a dollar of tax revenue increase now is somewhat more than a dollar of tax revenue decrease later, because you'll have spent the money before it grew. So it's crucial, when you take my money, to take it as part of a plan to deal with the fiscal gap--otherwise the gap grows and you've taken some of the resources we'll need to deal with it. (I tried to go over this in the aforelinked One Hundred Trillion Dollars post.) In any case, if you actually want to fix things, focus on consumption, not income. (I'll still pay more than average, I promise.)

And is it hopeless? Not at all. We still see, e.g. Foxconn to replace workers with 1 million robots in 3 years. We still see Sarcos Exoskeleton Bringing Iron Man Suit Closer To Reality and the beautiful Watch Festo's SmartBird Robot Soar Over TED Conference. We still see Loss of memory due to aging may be reversible and, for young and old, How Khan Academy Is Changing the Rules of Education. We may even see Could 100 Kilometer high towers usher in the next space age?

The SpaceShaft concept isn't as ambitious as the space elevator but it is much more feasible. For 130 million Euros we could design and construct a 100 kilometer tall SpaceShaft within a decade. Once we have SpaceShafts up and running, the frontier of space will finally be open to humanity.

Or then again.... maybe not.

update: Fixed silly typo which had billions instead of trillions.

Language-Learning Software; Bottom-Up?

As I've said, this year I've been working some on modern Greek, and thinking about it. My context, though, is a little more than simply that of a programmer with Greek family but no aptitude for languages. For more than ten years now, I've been on-and-off involved with media-annotation software that was mostly intended for teaching languages in a higher-education setting. (See, e.g., a 2005 Semantic Web Applications writeup as "Semantic Annotations for Digital Video" (PDF).) Quite a few Colgate students have learned Russian using Russian video with time-aligned transcript and commentary, texts that I can't read but that were linked by code I wrote. (The commentary may or may not be just one "layer", and may or may not include a translation; the time-aligned transcript starts as the sort of thing you create in transcriber, which I had scripts for the previous version of, or with ELAN — Language Archiving Technology; I've contributed code to ELAN, and I like its design and I'm doing more work on it this year, but I end up wanting an actual editable HTML page to contain the transcript etc. I'm hoping to do it all in HTML5, Real Soon Now.)

Of course, I'm not trying to learn modern Greek in a higher-education setting; I'm doing that on my own. Self-study software? I did get the Rosetta Stone Greek Level 1-2 Set and used it for a while (the little doggie at my feet is in fact named Rosetta, and that's why.) I haven't used it for a long time, though, and I really can't do it while trying for nine-minute miles on the elliptical. Still, the idea of language learning as a figure-it-out-as-you-go-along matching game does appeal; it's a common way for game worlds to work, and I have thought about implementing it within a world of time-aligned transcript+commentary, where we match sentences and play the selection...Hmm. But that would be further from my own personal current requirements than Rosetta itself. Well, since I was using actual flashcards for exercise-study and then using texts that I could think of as flashcards, it obviously might make sense to use flashcard software, say The Mnemosyne Project offering

• Efficient scheduling algorithm, so you don't waste time on things you know well
• Support for languages using different scripts through unicode
• Support for pictures, sounds and html formatting
• Support for three-sided cards, e.g. foreign words where you are interested in written form, pronunciation and translation

Mostly, though, I've been using pages that look like this fragment, from Dover's Listen & Learn Modern Greek:

I treat these as three-sided cards of variable size; in other words, I try to memorize a word at a time, then a phrase at a time, then a clause at a time, then a sentence at a time, and maybe even a dialog-fragment at a time. I start with the English and phonetic rendering, over and over, one word at a time, and then when I come back to a piece later I try to pay attention only to the Greek text. Repeat, repeat, repeat. Hmm....

My ideal software, maybe, would have time-aligned video dialog scenes (pretend or even real restaurant scene, airport scene, hotel scene...) done at full speed by native speakers and time-aligned sentence by sentence, but that wouldn't be the starting point. That would be the goal. The starting point for each scene would use the same transcripts spoken much more slowly with alignment points between each word and the next, and markup to indicate phrase/clause/sentence/paragraph structure.

The user would start with word-at-a-time audio to play over and over while getting used to the English; in effect, single-word flashcards with audio support. As those got familiar, they'd be merged into phrases and so on up; a Mnemosyne-like strategy would have to track which phrases contain only words you've adequately learned, which clauses contain only phrases you've adequately learned, and so on. There would also be auxiliary pseudo-scenes for verb conjugations and such, but they'd be dealt with in the same way: bottom-up.

Sure, it would be nice to click "KRAH-tee-seh" or the Greek it represents and get a dictionary entry which identified as much as possible. But that kind of thing is easy enough; it so happens that I'm spending part of my work-time trying to improve the extent to which ELAN can talk to SIL's FLEx, which does dictionaries nicely. (As long as somebody creates the dictionary data; content is hard.) And it might be nice to add a link to a Google Translate suggestion, in this case "κράτα τα ρέστα". Many things might be nice, but the idea I'm thinking about has what I'd like to call bottom-up flashcards, based on an ELAN-style breakdown of each sentence as a basic framework, with the actual dictionary for the bottom level if possible. Hmm.

I would really like a piece of software that supports this kind of use-case, and maybe one exists. Or it's possible that the code I work with now can be modified to do so.

Of course, maybe I shouldn't be thinking about this as a strategy; it may be a bad strategy even if implemented well. If I were a foreign-language teacher, or even a good foreign-language student, I'd probably know better.

Or then again, maybe not. I dunno.

Thoughts on Greece, and us

A large part of what holds Greece back, and us as well, is fairly described as rent-seeking--manipulation of public power for private profit, one way or another. In Greece, as in the Latin America of my childhood, it's much more likely to take the form of simple corruption: imagine (as I was told in Greece last week) an underpaid government official who approves environmental permits, and who provides faster service for those who provide extra money. And then he slows down the uncompensated permits sharply, to encourage the trade. It's not that he is lazy or works few hours, it's not even that there are too many such officials -- all that is often said but seems to be wrong. It's simply that his work product tends to detract from actual GDP, even as it's added at "cost" to official GDP. If he weren't doing that, Greece would be richer.

Other kinds of rent-seekers include those who profit from government-imposed monopolies, like the Athens taxi-drivers now striking, unpredictably blocking port and airport. Rent-seeking is a pretty broad category in my mind. I suppose that all countries end up with issues of regulatory capture and indeed of crony capitalism; government makes rules, and these rules will tend to promote the interests of those who have something to offer to the rule-makers, or some credible threat they can make. That interest-promotion is "rent," paid to the people who've managed to make some government power into their own property, legally or not.

I spent last week on Spetses, with various extended-family events relating to my granddaughter's baptism. It's interesting and educational to listen to Greeks and Greek-Americans talking about their fiscal crisis; I'd hoped to get some time specifically listening to Yannis Ioannides and Anna Hardman, and did, but not enough for real understanding. Yannis' basic Greece-is-not-bankrupt statement surprised me considerably (see Ioannides Says Greece Not Bankrupt, Must Change Economy: Video - Bloomberg). He thinks Greece really can pay its debts -- and he thought that even before the ’Restricted Default’ deal of this week, so I presume he thinks his case has been strengthened. He's an advocate for the austerity measures, which I suppose makes him one of the Serious People of whom Paul Krugman said this week in 1937! 1937! 1937! - NYTimes.com that

OK, so we’re going to demand harsh austerity in the debt-crisis countries; and meanwhile, we’re also going to have austerity in the non-debt-crisis countries. Plus, the ECB is raising rates. So demand will be depressed in both crisis and non-crisis economies; this will lead to a vigorous recovery through … what? The Serious People are determined to destroy all the advanced economies in the name of prudence.

I'm mostly on Krugman's side there; we're combining monetary policy from the ECB which may be reasonable for Germany but not for Greece, along with drastic contractions of an uncomfortably the-beatings-will-continue-until-morale-improves flavor. Or so it seems to me. But Yannis isn't supporting austerity to reassure bond markets as Krugman says; Yannis thinks that the "austerity" (including the deregulation of taxi medallions being protested) is part of breaking or at least limiting the rent-seeking system. Well, I'm not sure he or Anna ever said "rent-seeking" but that's my understanding of what they did say, and when I look for related material online I find things like BusinessInsider's querying a member of the `professional "elite" class' of Greece, who said

We want the Greek economy reformed. An end to the of unimaginable waste of taxpayers money,...cronyism and corruption. A much smaller and reformed public sector... A pursuit and prosecution of presently wide spread tax evasion practices. The above would immediately provide us with a considerable primary surplus, enabling us to keep repaying our debt, an obligation we wish to honour. ... Unfortunately it appears that the average Greek, does not view things the same way.

That certainly sounds like the viewpoint of the Greeks with whom I spoke. And how big is the corruption problem? Well, Transparency International said

The Greeks paid an average of €1,355 ($1,830) in bribes [in 2009] for public services such as speeding up the issue of driver's licenses and construction permits, getting admitted to public hospitals or manipulating tax returns, ... Bribes paid for private sector services such as lawyers, doctors or banks were even higher...

So really, Yannis and those he supports (to the extent that I understand what's going on here) are not so much engaged in economics as in political action aimed at restructuring Greek culture. Otherwise, the bailouts fail. In The Painful Arithmetic of Greek Debt Default | e21 - Economic Policies for the 21st Century I see

How does corruption limit the capacity for tax and spending reform? Tax avoidance, which relies on bribery to avoid prosecution, is a national pastime in Greece – the envelope used in the bribe even has its own name, the “fakelaki,” confirming the age-old adage that the Greeks “have a word for it.” Bribery is so rampant in Greece that real estate developers’ method of obtaining cheap land is to burn down public land, squat on the burned parcels, and pay off public officials to permit this. Greece’s forest fires, particularly in the Peloponnese in 2007, have been a source of public outrage for years, and yet the developers continue to squat on the land with impunity. Is a society that permits that sort of lawlessness capable of tax reform?

Maybe. Maybe not. I respect Yannis, but if the average Greek doesn't believe in it to begin with, I don't see a happy ending to this story.

Corruption is by no means the only problem, and an end to rent-seeking would not necessarily make Greece fit comfortably into the Eurozone. Clearly, little Greece will never be the target of the ECB's monetary policy. Krugman, in Anatomy of a Euromess, said that

Spain’s troubles are not, despite what you may have read, the result of fiscal irresponsibility. Instead, they reflect “asymmetric shocks” within the eurozone, which were always known to be a problem, but have turned out to be an even worse problem than the euroskeptics feared.

David Beckworth took Krugman's analysis and extended it in "Optimal Currency Area" terms within Eurozone Periphery and the Euro, saying

If a region’s economy is not in sync with the currency union’s business cycle and the above listed shock absorbers ("flexible wages and prices, factor mobility, fiscal transfers, and diversified economies") are absent then it does not makes sense for a country to be a part of the currency union. Instead, the country should keep its own currency which itself will act as a shock absorber.

It's no great surprise to see that in his graphs, Greece ends up as the most ill-placed. But I believe that part of the "austerity" program is intended to increase the flexibility of the job market (by pruning job protection programs, as has been tried before) and maybe, if the austerity programs are accepted, maybe things will work out. For a while. Public Pensions and Labor Force Participation: The Case of Greece

The pension system of Greece is a representative case of the “Mediterranean welfare state”, which is characterized by extensive segmentation, very high payroll tax rates, and yet inadequate pension benefits. In order to explain this paradox we construct an economic–demographic model. We show that in the period 1980–2000, the segmentation of the system and the very low labor force participation rates of the Greek economy have resulted in very high payroll tax rates in relation to the current level of benefits. On top of these problems, the expected adverse demographic developments in the period 2005–2050 will render the pension system completely unsustainable.

Still, the near-term need is to cut the rent-seeking (including corruption) and collect the taxes and shrink the regulatory/welfare state. Maybe. And can it be done? Well, my own approach in Greece, even more than in the US would be:

automate, eliminate, simplify, outsource.

Almost all of a government's functionality should be virtual... Well, maybe I will make a separate post about that, sometime.

Meanwhile, a little more time has been bought. The Economist remarks that

the biggest risk to the euro zone is that its leaders will begin thinking that they've solved the problem. As growth figures worsen in coming months, markets will once again become antsy. Euro-zone officials had better be preparing for a way to convince them anew that they want this thing to work.

And I go back to the pattern I established last winter, of exercise and education

This morning I spent 45 minutes trying to pound a few modern Greek words and phrases into an aging memory; until a month ago, this would have required a major effort of willpower, but lately I've been doing it every day with no problem...

As I commented to my son's mother-in-law, see-gah-see-gah mah-THAY-no, which I think means "little by little I'm learning;" since her response was "bravo, Tom, ah-krih-VOS!" (precisely), maybe it does. And maybe I will eventually learn some economics too. Or then again, maybe not.