Lately there has been much wailing and gnashing of teeth over the bonuses paid at AIG. Big deal. Have we forgotten about the $3.6 billion in bonuses that Merrill Lynch paid out just hours before the deal to be bought by Bank of America was to close? AIG’s bonuses are less than 5% of Merrill’s. $165 million now days is chump change. Let’s get back to working on fixing the problem.
Distasteful as it is the bonuses were legal. If we don’t like the laws then our elected legislators should thoughtfully change them. If they don’t, we can change the legislators.
We are now working on laws to allow the government to take over failing financial institutions (not just banks). This is reactive. Laws are needed to prevent companies becoming so big that they pose a systemic risk to our financial system in the first place. Financial instruments like derivatives and others need to be regulated like securities, which also need better regulation or more competent enforcement of existing laws. If companies then fail, existing bankruptcy laws can apply.
Existing credit card company practices make it exceptionally difficult for people in credit trouble to get out. The credit card industry needs reforms to protect consumers. Here are some ideas. All terms and conditions must be printed on 8 ½ by 11 inch paper in 10 point font so people can actually read them. It should not be legal to charge interest on money that is no longer owed as rolling two month average daily balance calculations do. Conditions that will cause an interest rate change should be explicitly listed. Sufficient advanced notice of an interest rate change must be given. Interest rates should not be allowed to become usurious. The grace period to pay must allow sufficient time for payment.
People must also assume responsibility for their credit cards use. If people don’t have money to pay for something up front they certainly won’t have money to pay for it at 30% interest. We need to stop financing our lifestyles and live within our means.
Thursday, March 26, 2009
Sunday, March 15, 2009
Education
The Obama administration has laid out its plan to invest heavily in education. Simultaneously states are being forced to make drastic cuts in education. The net effect is likely to be severely negative. Even if net investment were to increase it is not clear that investing in our current system is producing the results needed in today’s world.
There is plenty of data to show that our schools are failing. High school dropout rates are high and graduation rates low. The percentage of students going on to college is falling as is affordability and the number of students pursuing math, science, and engineering careers. The TIMSS 2007 International Mathematics Report (full report available at http://timssandpirls.bc.edu/TIMSS2007/mathreport.html ) presents some worrisome findings (emphasis mine). When considering the ranking of the United States, note that only Minnesota and Massachusetts were included – states with strong school systems relative to the rest of the U.S.
“At the eighth grade, Chinese Taipei, Korea, and Singapore had the highest average mathematics achievement. These three countries were followed by Hong Kong SAR and Japan, also performing similarly and having higher achievement than all the other countries except the top three performers. There was a substantial gap in average mathematics achievement between the five Asian countries and the next group of four similarly performing countries, including Hungary, England, the Russian Federation, and the United States. Among the benchmarking participants, the two U.S. states, Massachusetts and Minnesota, and the province of Quebec were outperformed by the five Asian countries but had higher average achievement than the group of four countries. The provinces of Ontario and British Columbia had average achievement similar to the group of four countries.
Remarkable percentages of students in Asian countries reached the Advanced International Benchmark for mathematics, representing fluency on items involving the most complex topics and reasoning skills. In particular, at the fourth grade, Singapore and Hong Kong SAR had 41 and 40 percent of their students, respectively, achieving at or above the Advanced International Benchmark. At the eighth grade, Chinese Taipei, Korea, and Singapore had 40 to 45 percent of their students achieving at or above the Advanced International Benchmark. The median percentage of students reaching this Benchmark was 5 percent at the fourth grade and 2 percent at the eighth grade.”
We view education as an expense rather than as an investment, particularly if it is other people’s children that are being educated. Investments are things that pay off over time. Expenses sap resources and by definition do not increase in value. Frequently, failure to make needed investment is disguised as “saving”. Consider the expenses incurred as a result of inadequate education; increased crime, the need for more police and jails, more welfare, more young single parent families, increased medical expenses, decreased tax revenue, and the list goes on and on.
Now consider the payback from investing in education; reduced crime, fewer police and jails, less welfare and medical costs, people paying taxes instead of consuming via tax funded programs, people able to afford homes, cars, and healthcare, people inventing new products to improve lives. In short, educated people create wealth instead of consuming wealth. A sixteen year investment in education (not including preschool) pays of over a career of 40 or more years. We must educate everyone’s children for they are the ones who will pay for our social security, invent the technologies that will reduce our energy consumption and provide sources of alternative energy, and they will be the ones who will be saddled with paying down our national debt. Hopefully there will be enough left over for them to live a comfortable life.
It is not sufficient to throw more money at a broken system. Our productivity (% of students graduating) is poor and the quality of those who do graduate is spotty at best. It is no longer sufficient in today’s world to deliver the same lectures driven by the same lesson plans that have been used by the same teachers for their entire careers. Our delivery system is no longer adequate and must be revised to engage and energize students’ innate capacity to learn. We need a new system of assessing learning progress. Standards for “Grades K through 12” or whatever we choose to call them in the future must be uniformly defined and enforced. Social promotion must end. Because people inherently do not advance at the same rate in all subjects there is no reason that a person is entirely in a particular grade. If a student’s age is that of a sophomore they may be reading at the level of a senior, doing math at grade level, and biology at freshman level. However, when we say that a student has “graduated” this must mean that a student has at least a known level of proficiency across a defined number of subjects. These standards must be the same in Picnic Florida as they are in Kodiak Alaska and they must be competitive with those of countries around the world.
To be successful, students have to be ready to learn. However, the reality is that there are many social inequalities that impact a student’s readiness to learn. How do you tech a hungry child, a tired child that has been working a night shift to support the family, the child from an impoverished single parent home? There is no easy answer to this but schools cannot be all things to all people. They must focus on delivering quality education. Other effective mechanisms will have to focus on correcting the social issues. A solid education will vastly reduce the need for these services.
Our mechanism for funding schools and compensating teachers must be completely revised. The quality and availability of education should not vary between the hills of Arkansas and Beverly Hills. Compensation and advancement for teachers should reward excellence, weed out indifference, and render unions irrelevant.
These are just some of the challenges we face. Our investment in education will determine our future.
There is plenty of data to show that our schools are failing. High school dropout rates are high and graduation rates low. The percentage of students going on to college is falling as is affordability and the number of students pursuing math, science, and engineering careers. The TIMSS 2007 International Mathematics Report (full report available at http://timssandpirls.bc.edu/TIMSS2007/mathreport.html ) presents some worrisome findings (emphasis mine). When considering the ranking of the United States, note that only Minnesota and Massachusetts were included – states with strong school systems relative to the rest of the U.S.
“At the eighth grade, Chinese Taipei, Korea, and Singapore had the highest average mathematics achievement. These three countries were followed by Hong Kong SAR and Japan, also performing similarly and having higher achievement than all the other countries except the top three performers. There was a substantial gap in average mathematics achievement between the five Asian countries and the next group of four similarly performing countries, including Hungary, England, the Russian Federation, and the United States. Among the benchmarking participants, the two U.S. states, Massachusetts and Minnesota, and the province of Quebec were outperformed by the five Asian countries but had higher average achievement than the group of four countries. The provinces of Ontario and British Columbia had average achievement similar to the group of four countries.
Remarkable percentages of students in Asian countries reached the Advanced International Benchmark for mathematics, representing fluency on items involving the most complex topics and reasoning skills. In particular, at the fourth grade, Singapore and Hong Kong SAR had 41 and 40 percent of their students, respectively, achieving at or above the Advanced International Benchmark. At the eighth grade, Chinese Taipei, Korea, and Singapore had 40 to 45 percent of their students achieving at or above the Advanced International Benchmark. The median percentage of students reaching this Benchmark was 5 percent at the fourth grade and 2 percent at the eighth grade.”
We view education as an expense rather than as an investment, particularly if it is other people’s children that are being educated. Investments are things that pay off over time. Expenses sap resources and by definition do not increase in value. Frequently, failure to make needed investment is disguised as “saving”. Consider the expenses incurred as a result of inadequate education; increased crime, the need for more police and jails, more welfare, more young single parent families, increased medical expenses, decreased tax revenue, and the list goes on and on.
Now consider the payback from investing in education; reduced crime, fewer police and jails, less welfare and medical costs, people paying taxes instead of consuming via tax funded programs, people able to afford homes, cars, and healthcare, people inventing new products to improve lives. In short, educated people create wealth instead of consuming wealth. A sixteen year investment in education (not including preschool) pays of over a career of 40 or more years. We must educate everyone’s children for they are the ones who will pay for our social security, invent the technologies that will reduce our energy consumption and provide sources of alternative energy, and they will be the ones who will be saddled with paying down our national debt. Hopefully there will be enough left over for them to live a comfortable life.
It is not sufficient to throw more money at a broken system. Our productivity (% of students graduating) is poor and the quality of those who do graduate is spotty at best. It is no longer sufficient in today’s world to deliver the same lectures driven by the same lesson plans that have been used by the same teachers for their entire careers. Our delivery system is no longer adequate and must be revised to engage and energize students’ innate capacity to learn. We need a new system of assessing learning progress. Standards for “Grades K through 12” or whatever we choose to call them in the future must be uniformly defined and enforced. Social promotion must end. Because people inherently do not advance at the same rate in all subjects there is no reason that a person is entirely in a particular grade. If a student’s age is that of a sophomore they may be reading at the level of a senior, doing math at grade level, and biology at freshman level. However, when we say that a student has “graduated” this must mean that a student has at least a known level of proficiency across a defined number of subjects. These standards must be the same in Picnic Florida as they are in Kodiak Alaska and they must be competitive with those of countries around the world.
To be successful, students have to be ready to learn. However, the reality is that there are many social inequalities that impact a student’s readiness to learn. How do you tech a hungry child, a tired child that has been working a night shift to support the family, the child from an impoverished single parent home? There is no easy answer to this but schools cannot be all things to all people. They must focus on delivering quality education. Other effective mechanisms will have to focus on correcting the social issues. A solid education will vastly reduce the need for these services.
Our mechanism for funding schools and compensating teachers must be completely revised. The quality and availability of education should not vary between the hills of Arkansas and Beverly Hills. Compensation and advancement for teachers should reward excellence, weed out indifference, and render unions irrelevant.
These are just some of the challenges we face. Our investment in education will determine our future.
Thursday, March 5, 2009
The Great Reset
Perhaps it is time to consider how much lemonade we can make from the enormous lemon that is our current economy. As bad as things are there are opportunities to emerge wiser and with a more sensible, sustainable future.
What have we learned? We learned that home values cannot go up indefinitely and that bubbles do burst. We learned that we cannot borrow indefinitely to finance profligate life styles. We learned that financial instruments can be made so complex that risk cannot be assessed. We learned that the financial geniuses who created and rated these instruments didn’t understand what they were doing. We learned that companies who offer credit cannot be counted on to have our best financial interests in mind. We learned that companies can be too big to fail. We learned that regulation and oversight is needed and that regulatory agencies cannot be lapdogs of those they are supposed to oversee. We learned what future energy costs look like when demand threatens to outstrip supply. We learned how quickly global demand collapses when interlinked economies suffer from poor policies.
As a country we tend to have a short memory and do not apply the lessons we’ve learned. We will emerge wiser and stronger IF: If we take responsibility for our finances and do not borrow more than we can afford; If we honestly assess what represents affordability in our own situation and ask for help as needed from someone who represents our interests; If we shun credit offered at usurious interest rates and do not finance day to day living; If we insist on regulation that protects people’s interests and that our regulatory agencies be held accountable for proper enforcement; If we invent and adopt technologies to reduce our energy consumption and create alternative energy sources; If we invest in and restructure our educational system so that the U.S. will create these breakthroughs and benefit from them economically and environmentally as they are deployed throughout the world.
If we have learned to live within our means economically and environmentally then we will emerge stronger and more secure as we will be significantly less dependent on other countries to supply our energy and finance our debt.
What have we learned? We learned that home values cannot go up indefinitely and that bubbles do burst. We learned that we cannot borrow indefinitely to finance profligate life styles. We learned that financial instruments can be made so complex that risk cannot be assessed. We learned that the financial geniuses who created and rated these instruments didn’t understand what they were doing. We learned that companies who offer credit cannot be counted on to have our best financial interests in mind. We learned that companies can be too big to fail. We learned that regulation and oversight is needed and that regulatory agencies cannot be lapdogs of those they are supposed to oversee. We learned what future energy costs look like when demand threatens to outstrip supply. We learned how quickly global demand collapses when interlinked economies suffer from poor policies.
As a country we tend to have a short memory and do not apply the lessons we’ve learned. We will emerge wiser and stronger IF: If we take responsibility for our finances and do not borrow more than we can afford; If we honestly assess what represents affordability in our own situation and ask for help as needed from someone who represents our interests; If we shun credit offered at usurious interest rates and do not finance day to day living; If we insist on regulation that protects people’s interests and that our regulatory agencies be held accountable for proper enforcement; If we invent and adopt technologies to reduce our energy consumption and create alternative energy sources; If we invest in and restructure our educational system so that the U.S. will create these breakthroughs and benefit from them economically and environmentally as they are deployed throughout the world.
If we have learned to live within our means economically and environmentally then we will emerge stronger and more secure as we will be significantly less dependent on other countries to supply our energy and finance our debt.
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