25.3.09

ECONOMIC FUNDAMENTALS. Here's an instructive report from the front lines.

I teach economics, but it’s not my first love. History is. The daughter of a master storyteller and social studies teacher, I spent my summers in history-rich upstate New York listening to my father unfurl the mysteries of our beloved nation. I continued studying history at Hamilton College. But I chose to get my graduate education in economics. The reason? I am much stronger at math than at reading.

Learning economics is easy for people like me. But the basic 100-level course is a dreadful experience for a weak math student. I know. I teach economics at Wake Technical Community College, full-time.

When I first started teaching the introductory economics course here, I felt as though I was teaching calculus to students who were barely ready for pre-algebra. The students hated it. I hated it. And the evaluations of the course reflected our feelings.

The problem, dear reader, is with the received structure of the introductory course, as reflected and reinforced in the standard texts.

For the student with math anxiety, even the concept of supply and demand is challenging. But then there is the concept of elasticity, followed by chapters on productivity, costs, and market structure. These can be a nightmare. The students get so caught up trying to figure out what equals what and solving for Q that the economic lessons are lost.

Yet students who are weak in math can and should learn economics. These students—the ones who come to my rescue as I stand helplessly before the class, scratching my head trying to figure out the A-V equipment—are clearly capable of learning, but their comparative advantage is not in math. For many of them, my introductory class is the only economics class that they will experience—if they transfer to a four-year school, my 100-level course does not transfer as an economics course. It transfers as a humanities class.

Given this, the goals of this class should be different from those of the traditional 200-level college-transfer principles class. Let me explain further.

Regular readers will know my skepticism about treating the college-transfer principles, or the pre-business principles, as a potted version of Samuelson's Foundations. Thus the further explanation generalizes.

Among the economic lessons I want to get across to my students is passion for the subject. What? Did she just use the words passion and economics in the same breath? Yes. I LOVE economics—the more basic the better. I want my students to get just as excited about the subject as I am.

Why is one-sixth of the world—the “first world”—different from the rest of the world? What did these countries do right that the rest of the world is not doing? This question is the focus of Adam’s Smith’s Wealth of Nations. I want to give my students the building blocks to answer this question. So, a year after I began teaching here, I tossed out the heavy principles text that I was given, adopted a small one, and narrowed the focus of my course.

In several principles-of-economics textbooks, the first chapter is devoted to the basic elements of economics such as scarcity, tradeoffs, opportunity costs, incentives, marginal thinking, etc. Most instructors spend very little time with this chapter.

I spend weeks on these concepts. These principles are at the heart of economics, which is, essentially, the study of human behavior. Economics explains how people make decisions—important ones such as where to go to college and unimportant ones such as which shampoo to buy.

I endorse the rest of the column. Pay particular attention to the concluding paragraphs.

The result: The students are happier, and so am I. My teaching assessments are much better, although the grades I give are not necessarily any higher. No matter what the level of the student, after finishing my course, I believe each can think intelligently about basic economic issues. For example, my students understand that inflation is the likely tradeoff of a $787 billion stimulus package coupled with a $700 billion financial-sector bailout.

At the end of the course, we spend a little time on practical personal finance—not the ins and outs of investing today but the lessons that are timeless, such as discovering your comparative advantage and living beneath your means. Students find this section the most valuable part of the course.

When new acquaintances learn that I am an economics instructor, they often say something like, “Ugh! I hated that class.” Their antipathy for the course is their only memory. But not for my students. Many of them become engrossed in the subject and most of them leave the class having learned concepts that will help them make intelligent decisions for years to come. Students need an approach more like my new one if they are to understand what economics is all about.

That "ugh" reaction is the second most common I get when I'm on travel and the conversation turns to occupations. (The most common is a request for investment advice, or an interest rate forecast. As. If.) But let me repeat that "the grades I give are not necessarily any higher." Encouraging understanding neither implies nor is implied by dumbing down, and collegians can recognize when they're being patronized.
GOING JOHN GALT? That's the theme at Sykes Writes today, with links to a roundup of push-back by the trading houses and to a very public resignation by a senior manager of A.I.G.
I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.
There are several possible reactions to the resignation, which as of this evening has produced 330 Technorati links. Betsy Newmark suggests that the people who could do the best job untangling the assets are precisely the people being driven out.
In this environment, some of those very financiers being so demonized today are the very ones who will have to step up to join in Tim Geithner's plan for the toxic assets. As Vincent Reinhart points out in the WSJ today, the Geithner plan depends on those same financiers deciding to go into business with the federal government in order to make outsized profits.
They understand trade-offs at 11-D.

On the other hand, I was irritated by the guy's cluelessness and disdain for politics. A basic mistake that these executives made was to agree to work for $1 in exchange for a bonus at the end of the year. Most people consider a bonus to be extra money that one gets for extraordinary success. Most people never get a bonus. And when the public owns your company, executives have to be conscious of political considerations. They are now public employees. The only reason that this man had a job all year was because of the government and the public's (reluctant) willingness to send them their tax money. He can't complain about politics and at the same time receive its benefits.

There was also some dishonesty about those $1 salaries. Make the people think that you are the good guys while taking secret bonuses on the side? That's not cool.

There are several basic questions on the table. If we own the financial industry, should finance people make average government salaries? Instead of making $400,000 a year, should they make $60,000 a year? Are we going to see huge attrition rates?

Those guys work really long hours with a lot of stress at jobs that aren't all that interesting only because of those fat salaries. If we chase them away are we going to be left with the types of people who run DMV?

Timothy Burke extends the ownership argument.
I would be remiss if I did not reply with a few comments. Since your company is now effectively owned by the government to which I pay taxes, consider this a reply from one of your employers.
The conversations in progress at these sites suggest more to follow.

24.3.09

SOME RESERVATIONS ABOUT THAT MADISON TRAIN. Last night, I suggested that the traffic forecast for a Milwaukee - Watertown - Truax Field passenger train service was optimistic. Shark and Shepherd elaborates.
It seems to me that supporters are in some type of denial. This line is supposed to carry 1.08 million passengers as opposed to the 766000 that currently use the Hiawatha line because ... why? Is there something at the Dane County Regional Airport that I don't know about. Could be, I suppose, since I have never had a reason to go there.
He also notes that a train service to the Capitol and the University might carry more passengers. Madison's geography poses a problem: there is a direct route from Watertown to the Kohl Center that passes right under the Monona Civic Center. It's facing the wrong direction for a fast train to the Cities. A station near the airport would be on a line faced more or less toward the Cities.

I got the link from a Charlie Sykes post that includes a fascinating transportation model video.


The display is a bit fancier than anything I will build, but I don't have a million person-hours to allocate to working on the railroad.
DESIGN YOUR OWN RAILROAD. The infrastructure program allows Milwaukee enough funds for a three mile light rail line. The Overhead Wire alerts readers to a contest, for people with time to play with Google Maps, to propose where that three mile line should go.

For comparison, people who have the JB Software Bahn program can view the Milwaukee streetcar network as of 1929. (The link goes to the first archive page. Do some exploring.)
BALL BUSTED. Me, last night.
Get the ball inside, if the shot is there, otherwise kick it out to a perimeter shooter, rebound aggressively. Iowa State probably has tape of this game.
The game summary, tonight.
The Cardinals (26-9) became the feel-good story of the tournament's opening weekend after shocking two-time defending champion Tennessee in the first round.
Check the performance from the tri-light zone: Cardinals 2 of 11, Cyclones 10 of 25.

23.3.09

NO STIMULUS MONEY HERE. The State of Maine Northern Railroad is upgrading its passenger service.


Two Kasiner kits and a set of comparable diner sides from some other manufacturer. The full coach came with some seats installed, although the interior will require additional work. Those are diner seats and curved lounge section seats next to the diner.


Those are brand new castings for a B-Lectric, a model introduced in 1936. The New Haven had two, and both of them will serve as tunnel motors for the East Boston tunnel. (That's only partially imaginary: the commuter train line through Lynn, Massachusetts is elevated on what at one time was a four track structure for a reason.)
YOU'D THINK THE AUSTRALIANS JUST WON THE AMERICA'S CUP. That's ESPN's Mechelle Voepel. Ball St.'s upset is tourney's biggest ever.

This is more "historic" because of what it indicates about the sport overall (hooray for the little guys' taking another big step) and the fact that it involves the sport's most historic program.

Regardless of Tennessee's flaws. Regardless of how Summitt's program had its lowest seed ever. Regardless of Kelley Cain's being injured (she had scored 10 points when she was sidelined) and missing the second half of Sunday's game.

We're talking "historic," and to qualify, you know Tennessee had to be involved. With all due respect to Stanford, which has won two NCAA titles, and to this year's No. 1 seed and overwhelming favorite, UConn, Tennessee has won more championships, been on top and represented the term "entrenched" more than any program in this sport.

Even people who know nothing else about women's basketball -- not one other thing -- know about Tennessee.

In much the same way that people who know nothing else about sailing know about Dennis Conner.

At her own site, Ms Voepel explains the work that's involved in obtaining Tennessee-style success.

This is a woman to whom nothing has ever been handed. She’s earned every bit of what she has. From the time she grew up toiling on her family’s farm to now, in 2009, when she likely won’t sleep very well the next few nights in her home on the Tennessee River.

I’ve heard other coaches talk with some envy about Summitt, and I always want to ask if they really want to live with the load she carries.

If they want to have to smile, shake hands, listen to strangers attentively and be “at their best” every time they step outside their homes, because that’s what Summitt has to do. If they want to live with the expectations of thousands of people who think national championships are just their right for being Tennessee fans. If they want to have a bulls-eye on their backs for every game, even in a season such as this where the pressure should have been off.

Or at least off a little. For pete’s sake, the program had just won back-to-back national titles - increasing that total to eight - but then lost all five starters. This was a team with six rookies and one redshirt freshman.

I would note some management issues in the final paragraph. It's no secret that players use up their eligibility and graduate, or that some of them might be tempted by a professional contract. At the New York Times, Jere Longman points to the same thing.
“I like our personnel,” Summitt said in our conversation. “The difficult part for me is that young kids give in to fatigue. The hardest part is to have players come into the program and not understand our culture and how hard you have to play.”
Coach Summitt made a similar observation at the press conference, noting that some of her recruits spent no time in the gym last summer, and observing that three new recruits would be arriving. Sounds like there will be a cutdown day. But these are players she recruited, and not out of the registration line the way the Wisconsin crew used to do.

On to the game breakdown: that injury to Kelley Cain is nontrivial. Get the ball inside, if the shot is there, otherwise kick it out to a perimeter shooter, rebound aggressively. Iowa State probably has tape of this game.
YOUR TAX DOLLARS AT WORK. Wisconsin governor Jim Doyle would like to use federal infrastructure money for improved passenger train service.

State officials are seeking federal stimulus money to pay the full $519 million cost of a proposed 110-mph Milwaukee-to-Madison passenger train line, not just part of it, Gov. Jim Doyle says.

If the grant is approved, trains could be running as soon as late 2012 or early 2013, cutting the travel time between Wisconsin's two largest cities to 1 hour, 7 minutes, officials say. That's about 20 minutes faster than the same trip by automobile, depending on traffic.

Service would start with six daily round trips, connecting Milwaukee's downtown Amtrak-Greyhound station with a new station at Madison's Dane County Regional Airport, with additional stops in Brookfield, Oconomowoc and Watertown.

At the same time, service on Amtrak's Milwaukee-to-Chicago Hiawatha line would increase from the current seven daily round trips to 10, with all of the Madison-to-Milwaukee trains continuing to Chicago. If Chicago wins its bid for the 2016 Olympics, the trains would provide a link between the main Olympic sites and the cycling venues in Madison.

But even without the Olympics, authorities expect the Milwaukee-to-Madison trains to carry 1.08 million riders a year within a couple years after service starts, said Randy Wade, the state's passenger rail chief. Hiawatha ridership jumped 24% last year, to 766,167.

That traffic forecast strikes me as wishful thinking. There's a lot more potential on the existing line, and the airport station offers south siders a 75 minute trip to the Loop as well as a convenient airport for residents of the northern suburbs of Chicago. Perhaps a more realistic forecast (maybe even one that would be exceeded by events) would help make the case for additional projects, and there are additional items on the wish list, including 110 mph operation on the C&M and through trains to the Cities and Green Bay.
Upgrading the Wisconsin portion of the current Hiawatha route to 110-mph service would cost $419 million, serving the existing stations downtown, at Mitchell International Airport and in Sturtevant and Glenview, Ill. Once that's done, service would jump to 17 round trips daily, with seven trains continuing to Green Bay and 10 continuing to Madison, with six of the Madison-bound trains continuing to St. Paul.
There's also an intriguing proposal for a freight bypass.

Previously, the state had planned to apply for $137 million to upgrade tracks on just a portion of the route, from Milwaukee to Watertown, and to build a freight rail bypass to improve passenger service on the Hiawatha line.

But that was when state officials thought the stimulus bill would include a little more than $1 billion for high-speed rail. After they saw that figure had soared to $8 billion in the final deal, they set their sights higher.

With so much money available from the federal government, Doyle said, Wisconsin has a good chance of getting money to upgrade tracks all the way to Madison. Stimulus money also may be available for preliminary work on the next stage of the line, which would go to St. Paul.

I'm going to want to talk about that "stimulus" line in a future post (this week, I'm in grading jail) as permanent improvements ought be viewed differently from fiscal stimulus. For the moment, that freight bypass intrigues. There once was a relief line from Brookfield that passed the fairgrounds and the stadium before entering the Menomonee Valley, and the freight bypass from the Valley to Florida Street is in place. There's a connection to the old North Western at Washington Street, and a freight-only line from St. Francis to Bensenville. Freights off the old Milwaukee get on that freight line south of Northbrook. I wonder if the plan is for something else.

The article includes a disclaimer.
Technically, the Midwestern trains wouldn't meet the international standard for high-speed rail, which is closer to 220 mph, well above even the 150 mph top speed of America's fastest train, Amtrak's Acela line in the northeast, said Rick Harnish, executive director of the Midwest High Speed Rail Association. Leaders of the Midwestern effort have said 110 mph service would be more affordable than true high-speed rail.
It's also doable with the current infrastructure, and a train service that included a few additional stops (Gurnee for Great America, Rondout for transfers to the suburban trains) would not be able to exploit 150 or 200 mph capabilities anyway. A 62 minute timing with stops at Airport, Sturtevant, Gurnee, Rondout and Glenview and 110 mph maximum speeds is feasible, at least on my computer.

22.3.09

THINGS TO COME. The Chicago O Scale March Meet took place over the weekend. The Fox Valley O Scalers have some new track to run trains.


While my railroad is in preparation, some of my passenger stock is testing on the new trackage.

Look closely at the sub-structure: the construction down cellar will mimic many of the features you see here.
OF BONUSES AND HOLD-UPS. New York Times business writer Andrew Ross Sorkin wonders if the hedge fund bonus recipients aren't collecting a ransom.

But what about the commitment to taxpayers? Here is the second, perhaps more sobering thought: A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.

A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave — the buzz on Wall Street is that some have, and more are ready to — they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.

So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company. In the end, we may actually be better off if they can figure out how to unwind these tricky investments.

Correct me if I'm wrong, but isn't new Yankee lefthander C. C. Sabathia in a position to earn more in five years than A. I. G.'s entire derivatives team will?

On the other hand, Mr Sabathia is unlikely to put several Chicago White Sox on base in order to demonstrate his effectiveness with runners in scoring position. Econobrowser suggests the incentives in high finance are different.

These payments apparently included "retention" payments of over $1 million each to eleven individuals who are no longer working at AIG.

One of the reasons this is so outrageous is that the promise of such bonuses was in fact one of the very factors that caused our current problems, creating incentives for managers of AIG to get out of solid insurance underwriting and into hedge fund gambling. If anyone had supposed that AIG had "learned its lesson", this report seemed to dash that hope against the wall like a plate of china.

Deeper in the post is a chart that shows where some of the other A.I.G. moneys have been going.

Also in the New York Times, Frank Rich is unsparing.

Bob Schieffer of CBS asked [former Treasury secretary and Harvard president Larry] Summers the simple question that has haunted the American public since the bailouts began last fall: “Do you know, Dr. Summers, what the banks have done with all of this money that has been funneled to them through these bailouts?” What followed was a monologue of evasion that, translated into English, amounted to: Not really, but you little folk needn’t worry about it.

Yet even as Summers spoke, A.I.G. was belatedly confirming what he would not. It has, in essence, been laundering its $170 billion in taxpayers’ money by paying off its reckless partners in gambling and greed, from Goldman Sachs and Citigroup on Wall Street to Société Générale and Deutsche Bank abroad.

I'm not sure laundering is quite the right word: if these payments are closing open positions, that's one way of relieving troubled assets, which I would think is what a troubled asset relief program does.

On the other hand, he notes that the respect for contract behind some official non-disapproval of the retention bonuses (which might be better described as deferred commissions) is a respect frequently honored in the breach.
Summers was even more highhanded in addressing the “retention bonuses” handed to the very employees who brokered all those bad bets. After reciting the requisite outrage talking point, he delivered a patronizing lecture to viewers of ABC’s “This Week” on how our “tradition of upholding law” made it impossible to abrogate the bonus agreements. It never occurred to Summers that Americans might know that contracts are renegotiated all the time — most conspicuously of late by the United Automobile Workers, which consented to givebacks as its contribution to the Detroit bailout plan. Nor did he note, for all his supposed reverence for the law, that the A.I.G. unit being rewarded with these bonuses is now under legal investigation by British and American authorities.
True though that is, the compromise of integrity inherent in abrogating contracts without a formal bankruptcy proceding, bundled with the compromise of integrity inherent in treating the tax code as outside constitutional provisions on bills of attainder, present yet another Atlas Shrugged moment.
QUESTION OF THE DAY. Did Natasha Richardson Die from Socialized Medicine?
The province of Quebec lacks a medical helicopter system, common in the United States and other parts of Canada, to airlift stricken patients to major trauma centers. Montreal's top head trauma doctor said Friday that may have played a role in Richardson's death.
Commenters to the post suggest it's not that simple. It's useful to keep in mind, however, that "single payer" also means "single buyer", as this commentary explains.
The essence of "single payer" medicine is that no one other than the government is allowed to pay for medical care. Thus the term "single payer."
In economic terms, monopsony.

A monopsonized market will therefore be characterized by a smaller quantity traded and a lower price than a competitive market with the same demand and other costs of production.

Monopsony power, like monopoly power, results in economic inefficiency. This is because the monopsonist avoids purchasing the last few units of a good whose value to the monopsonist is greater than their marginal cost, in order to hold down the price paid for prior units. In principle, inefficiency from monopsony can be mitigated by a well- placed legal price floor, which removes the monopsonist's power over price and eliminates its incentive to restrict the quantity it purchases. A modest price floor forces the monopsonist to take price as given and increase its purchases toward the level of competitive buyers. However, if the price floor is too high, the monopsonist will reduce its purchases -- just as competitive buyers would do in response to a price floor -- and inefficiency recurs.

The exercise of buying power by the canonical coal mine, or the chain store, is a bad thing, but somehow it gets transmuted into something good in the canonical state liquor store, or the state health service. Discuss.
ENJOYING THE ESTABLISHMENT'S DISCOMFITURE. Instapundit has an illustrated roundup.


The shame of it is that Our President, who can't even crack a bowling joke (how hard it would have been to say he's almost ready for a social visit to Milwaukee?) has an information minister who makes Baghdad Bob look professional.

But this weekend is a weekend for erasing evil.
THE BEST IN THE WEST, THE HECK WITH THE EAST.




Wisconsin's team will be developing a Tennessee-sized target at this pace.
Wisconsin, the only team to reach the NCAA title game in four straight seasons, also won NCAA titles in 2006 and 2007. The Badgers finished the 2008-09 campaign with a 33-2-5 overall record. They ended on a nine-game winning streak and a 12-game unbeaten streak.

Their opponent was Mercyhurst, who advanced to the final by eliminating Minnesota.

SIEVE!

GOOD BYE, ROCKY TOP.



Perhaps the Mid-American in particular, and the mid-majors in general, will get more respect.

20.3.09

ONE AND DONE. The previous post didn't really take an hour to produce.

Wisconsin 61, Florida State 59 in overtime. Boise State sold the naming rights to its arena to Taco Bell. I'm not sure who sponsors the blue football field. But it's amateur sports and it has nothing to do with money.

Concurrently, Siena 74, Ohio State 72 in two overtimes, despite Ohio State getting effectively a home opener.

Cleveland State 84, Wake Forest 69, striking a blow for the mid-majors.

Earlier in the day, the Golden Chickens, also playing in Boise, excused Utah State. Chief Runs-from-Huskies will not be running from any more Huskies in this tournament.
A PROPOSAL I CAN ENDORSE. I've been busy this week with economic education work, including a teacher workshop on the economics of alternative energy and a state championship for the Economics Challenge, which is more precisely the Greater Chicago Economics Challenge championship. I want my high-speed trains downstate.

With that background, consider a Minding the Campus proposal that more economics be in the core curriculum.
Meanwhile, colleges and universities are failing to integrate financial and economic education into their core curricula. The American Council of Trustees and Alumni has found that only one of one hundred leading American universities requires students to take an economics course. The University of Alaska at Fairbanks was the outlier, requiring students to take a course on political economy that covers such core topics as "the nature of interaction between markets and governments in the United States, including the nature of economic and political institutions, regulation, fiscal and monetary decision-making, taxation, and welfare policies, foreign trade and finance policy, electoral politics, and campaign financing."
To some extent, personal finance and consumer economics are properly the responsibility of the high schools, or perhaps the parents (the understanding of credit cards and loans the essay claims today's youngsters are deficient in are precisely the deficiencies middle-class parents used to address, in The America That Worked(TM).)

The political economy course appeals to me. I'm not sure why the modal college economics course is a potted dilution of the graduate sequence.

Game theory? Rational expectations? Viner-Wong diagrams?

Anne Neal, president of the American Council of Trustees and Alumni, identifies what's missing.
The ghastly statistics of the National Council on Economic Education (NCEE) should therefore come as no surprise: More than half of those surveyed do not understand what it means to say that the Gross Domestic Product (GDP) has increased, and nearly two thirds do not know that in times of inflation money loses value.

As for the current mess we’re in, less than half of the respondents can identify what a sub-prime mortgage is, according to a recent survey by the Center for Economic and Entrepreneurial Literacy.

This failure of our universities to make sure that students grasp the fundamentals of a subject which is now an integral part of modern life is baffling. After all, we trade with the entire world and those representing us in government often get elected on the economic promises they make to voters.

Unfortunately, the dearth of economics requirements is part of a broader sad story, the collapse of the core curriculum. On campus after campus, critical subjects like math, science, and American history have become optional. In fact, most well-known universities don’t even demand that their English majors read Shakespeare.
Although higher education's surrender to the professional protest constituencies and its misguided access-assessment-remediation-retention model are wrong, that students who have had an economics course tend to score no higher on some of those general knowledge tests than their contemporaries who have not suggests the standard course isn't working.

Opportunity costs. Incentives. Specialization. Institutions.
BORROWING AGAINST YOUR FUTURE EARNINGS. Eliot Spitzer makes a case for income-contingent student loans.
For too long we have asked students entering college and graduate school to choose one of two unappetizing options: pay astronomical tuition bills upfront or amass enormous debt that demands fixed, sky-high monthly payments the moment they graduate and enter the work force. These options serve as barriers to educational opportunity, since many cannot afford upfront tuition payments or qualify for the needed loans. That also distorts career choices, since for most the obligation to repay loans immediately has reduced the ability to choose socially desirable jobs such as teaching, forcing the pursuit of the highest-paying job regardless of personal or social utility.
When the feel-good stuff doesn't work, maybe it's time to think about policies that do work.
Yet there may be a "third way" that eliminates the educational financing problem. Milton Friedman first proposed the following idea, and James Tobin then refined and tried to effectuate it. If two Nobel laureates of decidedly differing worldviews agree, it must be worth at least a quick look.
The ensuing example is straight out of Capitalism and Freedom.
Instead of paying upfront or taking loans with repayment schedules unrelated to income, students would accept an obligation to pay a fixed percentage of their income for a specified period of time, regardless of the income level achieved.
The proposal is not perfect: the old Washington Monthly could regularly be counted on to grumble about physicians, individuals who generally don't share the income cohort of English Ph.D.s and early childhood teachers, defaulting on their student loans.

(Via Phi Beta Cons.)
MATURATION AT NBC NEWS? For the past few weeks, the NBC Nightly News have been running stories about individuals doing things to help their neighbors cope with the recession. The reporting is straightforward. Perhaps it's because no president has made a request for a thousand points of light recently?

19.3.09

FROM THE FIRST CLANG OF THE RAIL TO THE LAST CLANG OF THE RAIL. Once upon a time, the corrective labor camps of the Soviet Union afforded the Evil Emperor a way to extract cheap labor from politically inconvenient people, although the Organs of State Security had little reluctance to murder such people before extracting labor. The prison system of Russia is still a way to extract cheap labor, although English investment banker Tig Hague found out about it as a cumulation of small misfortunes that he could have avoided by bribing a functionary at the Moscow airport, rather than by being named on a list that was later misplaced. His recollections are in print in Tomorrow You Go Home: One Man's Harrowing Imprisonment in a Modern-Day Russian Gulag. I'll keep Book Review No. 12 short. The prison system is a different method of extracting bribes, something that Mr Hague figures out, going so far as to tell one of the prison officials that the British Embassy is getting angry at sending bribe money with no results. Mr Hague was paroled. The details are left to the reader to work out. Much of his experience parallels Alexander Dolgun's in the Evil Empire's prisons, including signing the protocol, transportation in Stolypin cars, work norms, and exchanges of favors with underpaid prison guards. But the Evil Emperor wasn't in the business of selling prisoners for hard currency.

(Cross-posted to 50 Book Challenge.)
SOME RESPECT FOR THE MID-MAJORS. One Women's Hoops post lists this year's nominees for coach of the year, including Bowling Green's Curt Miller in Region 4 and Florida State's Sue Semrau, once a Northern Illinois assistant, in Region 2. Another post proposes Ball State's Kelly Packard as rookie coach of the year, elaborating on this story in making the case.
EVERYDAY HIGH BONUSES. No bailout money, no Congressional micromanagement.
In a memo to Wal-Mart employees obtained by Reuters, Wal-Mart CEO Mike Duke said the retailer is awarding roughly $2 billion to U.S. hourly employees, which includes $933.6 million in bonuses, $788.8 million in profit sharing and 401(k) contributions, millions of dollars in merchandise discounts, and contributions to its employee stock purchase plan.
The story provokes nostalgia at Cafe Hayek.
Don't they know there's a recession going on? How dare they award their employees for doing a good job? They should all give a bunch of the money back to the government. What? The bonuses aren't being funded by taxpayers? How yes, I remember. This is how capitalism once worked. Successful companies rewarded their employees and lousy companies disappeared.
Ayup. Market tests have steep grading curves.
DEJA VU, ALL OVER AGAIN? The chorus to the Soviet version of The Internationale envisions the Great October Socialist Revolution as the final and decisive battle.


Now comes The Troubles: the Sequel?
Russia's dependency on oil is pushing the country's economy into a tailspin. Oil peaked at $147 a barrel in July but has since plunged as low as $35 a barrel. As a result of the plummeting oil price and the global financial crisis, gross domestic product shrank by 8.8% in the 12 months to January, the rouble has lost one-third of its value since September and unemployment is expected to rise to 10 million by the end of the year. The Kremlin has spent more than $200bn of its reserves to cushion the devaluation of the rouble and avoid public panic.
Russia is a country that didn't have much of an entrepreneurial tradition before 1917, and has trouble incubating one, or resurrecting a New Economic Policy, now.

Stephen Dalziel, executive director of the Russo-British Chamber of Commerce (RBCC), believes that the financial crisis in Russia is much worse than in Britain.

"I think that the problem is that they were unprepared to the point of being arrogant," he said. "When sub-prime happened in 2007 they were arrogant because they thought it was a western thing. They said it wasn't like 1998 and then it suddenly hit them."

He believes that the situation for businesses is far worse than 1998.

The government is "too dependent on natural resources, which is foolish", he said. "They do nothing to encourage an increase in small and medium enterprises. Hopefully this time they will understand how SMEs develop the backbone of an economy. They have paid it lip service, but haven't done anything."
The Soviet model of economic development, which took Karl Marx's understanding of One Big Factory and Frederick Taylor's ideas of scientific management to the limit of setting up cities to serve such factories aggravates the problem. In a closed planned economy there is no question of such cities failing. In an open market economy the consequences of failure can be severe.

Outside Moscow and St Petersburg, there is a potentially more serious problem looming. Russia has many so-called monocities, where most of the town's population is employed by one industry such as car production or commodities output.

"The biggest problem for now is monocities," [Moscow political analyst Georgy] Bovt said. "One example is Tolyatti [named after an Italian communist] in the Volga, where about 60% of the population are involved in Lada production. The plant is in trouble so most of the population of the city will be unemployed."

With mass unemployment could come mass unrest. Several demonstrations have already taken place as hundreds of thousands of people have lost their jobs or had their salaries cut, but the authorities have been quick to shut them down.

"Authorities are absolutely terrified of social unrest, the idea of a spontaneous explosion of unrest," said Dalziel. "If there were to be a mass demonstration somewhere, there could be a domino effect. I really don't think anyone in authority knows what to do."

If the social unrest includes revolutionary songs, will the Russians have to rewrite this one as We Renounce the New World?

18.3.09

A RAPID CONCATENATION OF TROUBLES. U. S. investors stop supplying capital to a country and a region goes into recession. Stock prices revert to their more traditional multiple of earnings. Financial intermediaries have suspect balance sheets. Governments borrow heavily. These events occur within the span of a year or two, rather than over a decade. The events in question are what we now know as The Great Depression and Liaquat Ahamed's Lords of Finance: The Bankers who Broke the World analyzes them and places them in historical context. Book Review No. 11 concludes that the book gives reason for cautious optimism. Unlike today's central bankers, the lords (England's Montagu Norman, France's Emile Moreau, Germany's Hjalmar Schacht, and Federal Reserve chairman Benjamin Strong) were constrained by a gold standard worked out when the British Empire was the leading financial power but imbalanced by the gold reserves accumulated by the United States during the Great War, and managing capital markets burdened by large public borrowing to pay for that war. The European powers borrowed integer multiples of their annual national income to finance that war, from each other and from the United States, and demanded large reparation payments from Germany. That the countries didn't turn on the printing presses earlier becomes one of the stories of the book. That the rigidities of the gold standard led monetary authorities to consider new standards for changing exchange rates is another. That policy makers learned by their mistakes, particularly in the 1928-1933 era, offers grounds for cautious optimism.

The central bankers themselves are an interesting lot, often people not born to the ruling circles, sometimes middle-class strivers who make tremendous personal sacrifices to achieve their positions (central banking being neither glamorous nor for the weak of mind). Their private foibles and troubles add richness to the story.

If there is a star of the story, it is John Maynard Keynes, who accurately understood the errors of the Versailles treaty and of the gold standard, particularly one based on the pre-war conversion terms. An article he wrote for a British paper resonates today See pages 229-230.
We should run the risk of having to curtail ... credit to our industries merely because an investment boom in Wall Street had gone too far, or because of a sudden change in fashion amongst Americans towards foreign bond issues, or because banks in the Middle West had got tied up with their farmers or because of the horrid fact that every American had ten motor-cars and a wireless set in every room of every house had become known to manufacturers of these articles.
Mr Ahamed suggests that the depression that began, long before there were ten cars in every garage and wireless in every room, was exacerbated by the ineptitude of the successors to Mr Norman and in particular Mr Strong.

(Cross-posted to 50 Book Challenge.)
THEM THAT HAS GETS. The womens' basketball tournament selection show Monday turned into the usual hype about the usual suspects. I hold no brief for Connecticut coach Geno Auriemma, although his stock went up when he expressed some exasperation with the show giving the rest of the field ample material to get worked up to play his team. Credit for the most tone-deaf observation goes to Tennessee's Pat Summitt, who came off as a bit jaded, observing on national television and for the viewing pleasure of her team that today's youngsters don't play with the same sense of urgency (that's close to an exact quote, I don't tape these things) as previous iterations of Tennessee recruits did. I emphasize recruits. Somebody who has the opportunity to select players and offer them with opportunities has nobody to blame but herself when they don't perform as expected. Coach Summitt wouldn't last a week teaching gen eds at a mid-major.

As usually happens in the Them That Has Gets world of the womens' tournament (and as predicted here) the mid-majors got hosed.

Even in a year begging for an olive branch with a dearth of major-conference at-large candidates, only Virginia Commonwealth out of the Colonial got so much as a twig.

No offense to Georgia or Michigan State, but did schedules largely devoid of quality wins outside of conferences widely viewed to be, at best, treading water really merit at-large bids at the expense of Bowling Green and Illinois State? Ball State, a team that wasn't as good as Bowling Green over the course of the regular season, scores an upset against the Falcons in the conference title game and gets a No. 12 seed in the big show.

But Bowling Green, with its 15-1 conference record and regular-season title, didn't deserve a No. 11 seed?

Could Georgia go 15-1 in the MAC or could Michigan State go 15-3 in the Missouri Valley? Probably, but so what? Georgia also gets to recruit, travel and train with all the advantages inherent to an SEC athletic department. It had its chance to distinguish itself in both the conference regular season and tournament and didn't do it.

It's not the selection committee's fault that these conferences insist on conference tournaments that serve only to dilute their own product, but every once in a while, it wouldn't hurt to throw the little guys a bone when they earn it over four months.

It's amateur sports and it has nothing to do with money, so the revenue enhancement the tournaments offer, if any, shouldn't matter. (The two Mid-American tournaments are in Cleveland. Early in March. With the northwest winds blowing snow squalls in off Lake Erie.)
THE ECONOMISTS WILL BE RECEIVING RETENTION BONUSES. The management of the Kentucky state community and technical college system have decided to make all future faculty appointments on a short-term basis.
New hires to the system will be offered a series of three one-year contracts before having the opportunity to sign a two-year contract. Any exceptions to these short-term contracts must be approved by the system president.
The managers expect to be able to make more full-time appointments.[System president Michael] McCall also suggested that, as a result of eliminating tenure, the system may see a rise in the number of full-time faculty. Currently, he said, the economy has forced the institution to hire more adjunct and part-time faculty than he would prefer.The assertion is spin. Fluctuations in enrollment might give the management reason to not commit to long-term hires. With a more steady-state enrollment, the management is in a position to maintain a steady-state cohort of full time faculty, whether these are tenured or on renewable contracts. The article suggests that tenured appointments produce rigidities.

Richard A. Bean, chair of the KCTCS board, said the system would have greater hiring flexibility without the tenure system. As demand for instructors in various disciplines fluctuates, he said the system would be better able to make appropriate hiring decisions with faculty members on short-term contracts. Hypothetically illustrating his point, he used the example of having the ability to hire more Spanish instructors if demand for the language were great, and to retain a limited number of Latin instructors if there were little demand.

“Our objective is not to find ways to let people go, but to educate the people of this great commonwealth with flexibility,” said Bean, emphasizing that the regents had been discussing this matter well before Kentucky’s budget crisis, and the national economy, took a turn for the worse.

Again, readers are being spun. Retaining a limited number of Latin instructors is not inconsistent with a small number of tenured Latin specialists. Or perhaps a local Catholic college would be willing to be a subcontractor. Flexibility is almost always a code word for reducing commitments, whether to capital or to labor.

The dean at Anonymous Community gives the proposal a revise-and-resubmit with no presumption of acceptance.

In various forms – the adjunct trend, increased tenure requirements, ratcheted-up employee contributions to health insurance and retirement accounts – this has been the MO of higher ed in America for the last thirty years. Everybody at the table agrees to screw over the folks who aren't yet at the table. This satisfies everybody at the table, but it does so at the cost of long-term sustainability and intergenerational fairness. Rather than solving the problem, it postpones it with interest.

The Kentucky system is looking down the barrel of several decades in which some faculty have tenure, and some full-timers never will. There is simply no way for that not to result in high drama. The impact on shared governance alone is likely to be devastating.

The full post and the ensuing bull session merit your attention.
It's almost certainly true that doing away with tenure won't result in immediate short-term savings. If anything, it might actually cost a little in the short run, if prospective hires demand higher salaries to compensate for increased risk. (In the evergreen disciplines, I suspect that most prospective hires won't have the market power to make those threats stick, but it might happen in some niche programs.)
Part of running higher education like a business is making businesslike offers to prospective hires. That includes retention bonuses.
RECLAIMING THE CULTURE. Professor McCracken is in a good position to observe the end of the investment bankers' dominance in New York City.
There is evidence of hostility these days...against the hedge fund managers, banking executives, those who ran the likes of AIG, and guys like Bernie Madoff. This ad suggests that the wealthy are vain, self centered, irresponsible. Conspicuous consumption is now doubly conspicuous.
But is that the traditional snobbery of old money, or the reverse-snobbery of the class of knowledge workers that includes your Superintendent, particularly on curmudgeonly days? The ad in question features a Hollywood dad, possibly divorced. That's not determinative of a leveling influence at work.
The anthropological questions: could this hostility scale up into a more substantial class hostility? Will it be used by individuals to mandate their own departures from existing consumption patterns? Can something like shame be used by some people to comment on and constrain the behavior of others? Will this work?
I'm not sure a graffito on an advertisement is an indicator of a mood shift. The McDonald's digs at coffee snobs are also a small sample, but they could be indicative, although McDonald's is a good metaphor for the Third Worldization of the United States. I'd be more encouraged if I saw a restoration of the more modest expectations and attitudes of The America That Worked(TM).
BE CAREFUL WHAT YOU ASK FOR. Hee.

Republicans captured the new mood of populism in the nation. Candidates like Mitt Romney, who now spoke with a southern twang and carried a pitchfork, asked why savers should bail out lenders and borrowers, why taxpayers should prop up bank directors and why houses should be expensive instead of affordable. Border control, which Obama had never properly addressed, also began to resonate with ordinary Americans amid the job shortage. The 2012 race looked close, but Mike Huckabee, running on the slogan "God help us", eventually pulled out a persuasive win.

During the next presidency, the economy finally recovered. The recession, deep as it was, had run its course. The new leaders, unfairly, claimed vindication for their policies of tax cuts and deregulation. The public, unfairly, believed them. Obama retired to Chicago, where he returned to teaching constitutional law, and liberalism's brief renewal, the dream of FDR reborn, slipped quietly away.

15.3.09

BEFORE SNORKELS AND PERISCOPES. The Confederacy floated the first submarine to sink an enemy warship. The H. L. Hunley: The Secret Hope of the Confederacy tells its story. Book Review No. 10 will be relatively short. Hunley was the second submarine built by a consortium including its namesake. The first, named Pioneer, was built in New Orleans in an attempt to lift the blockade there, and subsequently scuttled. The Navy raised it, made extensive surveys and records of it, and scrapped it. Hunley, which had the nickname Fish Boat, as it looked like a metal fish, was built in Mobile and subsequently transported overland to Charleston. The book suggests the crew passed out and subsequently suffocated for lack of oxygen after Hunley sank Housatonic.

The Confederacy might have had a third submarine operating in Hampton Roads, until a crew from the James River Blockading Squadron noticed the float supporting its snorkel and made fast a rope to the air supply line. That submarine has not yet been recovered. The Navy might also have had a submarine, although its first operable submersible was not ready until 1866.

The book relates an instructive story about changing strategic interests. In the 1850s, the European powers adopted a convention banning privateering. The United States, with a relatively small navy, opted out. Come the Rebellion, the United States sought membership in the convention, which would have obligated the European powers to capture or sink the numerous Confederate commerce raiders operating as privateers. (The submersibles were also privateers, but presumably not intended for an early Battle of the Atlantic.)

It's less good with its references to Jules Verne. Verne has sympathies for various underdogs, including Rebel blockade runners, and he might have learned of some of the Rebel efforts to build an electrically powered submersible. (I am not making this up, there are several references to electromagnetic engines in the book.) It would not be too far a stretch for Captain Nemo to have put his great fortune to adaptation of Ruhmkorff's apparatus shortly after the Rebellion. But only somebody not familiar with Verne's work could pen this.
Verne, after all, presents his novel's protagonist, Captain Nemo, as a bona fide misanthrope. Cynically and cowardly, inside his submarine boat the Nautilus, he revels in sneaking up on his prey, conventional surface ships -- and for no good reason, sending them to Davy Jones's locker.
The quote is from page 48 of Hunley. The ships Nautilus rams in Twenty Thousand Leagues are, apart from the U.S. Navy ship that fires on it, British. Verne is French. Captain Nemo's ancestry is revealed in Mysterious Island. Nautilus is an allegory for Hunley, including the resentment of the gentry against an unsympathetic occupier.

(Cross-posted to 50 Book Challenge.)
THE PRICE OF SUCCESS. Ball State's womens' basketball team defeated Bowling Green in the Mid-American tournament in beautiful Cleveland. Monday night, we shall see whether Bowling Green's regular season record is still good enough to qualify for the national tournament, at the expense of one of the so-called bubble teams from one of the so-called power conferences (it's amateur sport and it has nothing to do with money) or if the emerging parity in the Mid-American means only the tournament winner gets the phone call.

There's a back story about Ball State's former coach Tracy Roller, who resigned after the 2008 season but returned to watch the team on Senior Night.
SEEKING AMBROSE BIERCE. If he were alive, he might define accountability as taking time away from doing the things you're supposed to be doing to explain to people who might not understand what you're doing that you're doing the things you're supposed to be doing.

I'm pleased to report that the external reviewers of the economics and physics programs at Northern Illinois told headquarters both departments were doing a great deal of work, effectively, with the few resources they had.

I'm less pleased to discover, via Newmark's Door, that some managers see the accountability fetish as a feature.
Communicate more, in order to meet less. Be proactive in your communication. Don't wait for them to call a meeting. Tell them what's going on. Produce regular reports. Don't "promise" to produce regular reports -- just produce them. Let them listen in on some of your day to day chatter. If you have daily standups, bring the manager in. Stop baffling them with technical mumbo jumbo. Feed them edible slices of information. Walk them through it in bite-sized chunks. Give them documentation tasks to keep them feeling important. Give them communication tasks. Draw pictures for them to stick on the wall of their office.
I believe the barnyard epithet about the steer not getting fatter any faster if it's weighed more frequently applies here. The one management fad that hasn't made its way from the private sector, where middle managers who existed to be given documentation to feel important went in the late 1980s downsizings, into higher education, has been the proliferation of middle managers.
HOLD MAIN LINE AT LINCOLN JUNCTION. Despite springlike conditions, the Chicago, Peoria, and Southern had coal and manufactured goods to haul.


The Peoria station looks like something from the Dual Monarchy, although you won't see coal trains like this east of Halifax or west of the Bug River.


Today's crew included lots of people from the Fox Valley club, who know how to move trains. They'd pulled all the interchange tracks on a previous run, leaving this two-horse hitch to return from Springfield to Peoria.


The CP&S is a Soo Line property, hence the unusual diesels within bribing distance of the State House.

14.3.09

THEY BOUGHT IT. They can name it.

As news of the name change was posted Thursday at suntimes.com, a number of readers wrote in to grouse: "It's all about money!"

Which it is. As it should be.

Naming the 36-year-old skyscraper Sears Tower to begin with, essentially creating the world's tallest store sign, was all about money, too.

It's not like anybody's talking about renaming the Chicago River the Citibank River.

Which for the record, Mayor Daley, we would oppose.

We've come down in the world, if a notorious recipient of bailout money is the high briber for naming rights to the Chicago River.

Which we would still call the Chicago River.
Just take a look at the dozens of suburban places popularly known by names that don't technically exist anymore - the Rosemont Horizon, Palwaukee Airport or the East-West tollway. And there's still an active, angry group protesting the name change from Marshall Field's to Macy's.
And we have more to look forward to.

Companies spend millions of dollars on naming rights for certain buildings in hopes that repeated name use will help its marketing efforts. But the plan can backfire, especially when landmarks are involved, [senior advertising executive Bob] Killian said.

"This will be a blip compared to when Wrigley Field gets renamed," he added.

There isn't enough lipstick at Avon to cover that pig.

ENABLING BAD BEHAVIOR.

A Chicago Tribune editorial calls out the city fathers of Schaumburg, otherwise known as Scumburg, or as yuppie hell.
Schaumburg recently deactivated a red-light camera near the Woodfield Mall in Schaumburg because ... it was doing too good of a job.
From November to January, the camera caught about 10,000 violators and the village slapped them with $100 tickets, mostly for turning right on red without making a full stop. But that brought a blizzard of complaints from drivers, and some threatened to stop shopping at the mall if the camera remained in place.
Village Manager Ken Fritz said that enforcing the right-turn-on-red law wasn't improving public safety and the village wanted to be "as friendly to customers as we are to villagers."
So the camera goes, and the scofflaws get a free pass.
It's always amusing to read Illinoisans taking other Illinoisans to task for being bad drivers. Here goes.
This is the wrong idea. The camera proved its worth. Clearly, a lot people are making illegal turns there, and that's a dangerous thing to do. The village is caving because it fears the economic consequences of enforcing the law. And what are the consequences if a driver whipping around a turn smacks a pedestrian or another car?
As if there's anybody walking around there anyway. Like other yuppie hells, the area is thin on sidewalks. Illinois pedestrians quickly learn to practice defensive walking, as a walk light is no protection against a cell-phone-jawing, to-the-left looking driver who treats the red light as reason to make a cursory check for oncoming cars and roll into the crosswalk, possibly to stop there.

The self-absorbed pedestrians one encounters in California who attempt to walk and text-message at the same time are still rare in Illinois. There's probably a tasteless pool somewhere on the frequency of fatalities involving pedestrian texters and right-on-red crosswalk infringers.
It's doubtful that many shoppers would stop going to the mall because of the camera. Motorists have a way of figuring out where the speed traps and traffic cameras are—and they act accordingly. They slow down. They stop at the light.
Maybe. Or perhaps they become a danger around Oak Brook or Old Orchard instead.

To make the story more amusing, consider Chicago, where there are lots of red light cameras (not that the streets are any safer for pedestrians) but relatively few police cruiser cameras, and the police don't mind.
Contrast that with Mayor Richard Daley's enthusiasm for other types of video. Chicago now has some 2,250 surveillance cameras to detect criminal conduct in public places. By 2016, Daley promised last month, Chicago will have one on every corner.
The city has also installed red-light cameras at some 132 intersections, with another 330 planned. So what exactly is different about those cameras? Well, they are trained on the citizenry, not on the police. What's sauce for the goose seems to be regarded as a dubious liquid substance when proposed for the gander. The city is less eager to capture video evidence if it may expose wrongdoing by its own law enforcement agents.
But the rest of us might want to keep unsleeping electronic eyes on the people with guns and badges. A city with a good police department can gain a lot from squad-car video cameras. A city with a bad one can gain even more.
Chicago? Bad cops? The purpose of the police is the preservation of disorder?
MORE FUN WITH TRAINS. Going Underground alerted readers to an upcoming open day at the London Transport Museum's Acton property.



The Underground cars aren't quite as exotic as a trolley diner in a converted brewery, but they have character. I hope the weather cooperated.

A subsequent post reported on the open day itself. This modular layout is evidently a retrospective look at New York.


The high-railers have a number of North American transit cars to choose from, including recently issued Spam Cans in Mercury Green and Croydon Cream with Swamp Holly Orange lining. The next stop will be Belmont, change for Ravenswood.

The post noted a long queue of visitors. Perhaps that's a manifestation of the recession, or possibly a mood shift. I went to the February swap meet at the DuPage County Fairgrounds. Around noon, when I left, there was a line out the door and halfway back to the parking lot. Traders told me that traffic was up but buying down.

12.3.09

THE NEXT GENERATION OF ECONOMISTS. We've completed judging of the entries in the Economics Concepts Regional Poster Contest.


View all the winning and honorable mention entries.
NO MORE BUBBLES TO POP? Michael Barone recommends some reading, and contemplates recent history.

If you want to read a very short book on how we got into the financial crisis, I don't think you could do better than John B. Taylor's Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis. Taylor argues persuasively that the Federal Reserve kept interest rates too low for too long in 2002-05 and that "government programs designed to promote home ownership, a worthwhile goal but overdone in retrospect," together with the credit that was plentiful because of unduly low interest rates created the housing bubble.

"The rapidly rising housing prices and the resulting low delinquency rates likely threw the underwriting programs off track and misled many people." The ratings agencies also bear some responsibility for creating the toxic assets that clog the banks and other financial institutions. "The ratings agencies underestimated the risk of these [mortgage-backed] securities because of a lack of competition, poor accountability, or, most likely, an inherent difficulty in assessing risk due to complexity." He also mentions, rather fleetingly, the role of Fannie Mae and Freddie Mac in flooding the marketplace with mortgage-backed securities; his account can usefully be augmented by the works of my American Enterprise Institute colleague Peter Wallison.

I'm going to add that book to my list of things to acquire and read. There should be no problem meeting the fifty this year. For Book Review No. 9 I offer Michael Lewis's Panic, which suggests it's 20 years in the making. Mr Lewis collects a number of columns, some humorous, some instructive. One column helped me understand the tranching of mortgages in mortgage-backed securities (although I'm still not completely clear on whether specific mortgages provide collateral for specific securities, or whether the principal and interest are commingled in backing the entire convex combination of securities). The book ends with a series of columns on the recently-ended real estate bubble. But before that came the dot.com bubble (but for the campaign against terrorism might the real estate bubble have come sooner), preceded immediately by the Asian Tiger bubble, and a decade before that came the portfolio insurance bubble and the Crash of 1987.

Thus the story of my life: to come of age during the experiment against reality that was the late 1960s and early 1970s, and to spend young adulthood and middle age detached from the experiment against reality called upscale indulgence, where the glamour careers were hustling real estate or internet startups or derivative securities. Perhaps I can grow old watching the restoration of The America That Worked(TM).

(Cross-posted to 50 Book Challenge.)
AGAIN. This time in Germany.


Albertville, Germany.
Getty photo courtesy The Daily Mail.
RISK MANAGEMENT. The bad mortgage outbreak is concentrated in a few states.
More than half of the nation's foreclosures last year took place in 35 counties, a sign that the financial crisis devastating the national economy may have begun with collapsing home loans in only a few corners of the country.
Those corners are notorious subsidy recipients.
A few of the 35 counties leading the foreclosure boom are in already-distressed areas around Detroit and Cleveland. But most are clustered in places such as Southern California, Las Vegas, Phoenix, South Florida and Washington, where home values shot up dramatically in the first half of the decade, then began to crumble.
Let us count the ways: subsidized water projects protecting southwesterners from any reason to conserve water, or not develop a desert in the first place; generous public pensions that make retirement to sunny places feasible; years of protectionism for heavy industries.

The knock-on effects will be widespread.
The Obama administration on Wednesday detailed a $75 billion plan to keep more homeowners from slipping into foreclosure by helping them refinance loans or reduce their monthly payments. But that effort could face political challenges because most of the foreclosure problem has been so concentrated in a few areas, says Brookings Institution researcher Alan Mallach.
Perhaps public awareness that a few are attempting to use the state as an attempt to live at the expense of many informs those tea party protests.
HABIT PERSISTENCE. I still catch trains at North Western Station, and the White Sox still play at Comiskey Park, and ownership change notwithstanding, it's still the Sears Tower.
CAUSE TO BE CHEERFUL. The Mid-American Conference recognizes Northern Illinois.

Northern Illinois' 380 student-athletes in 17 sports posted the highest grade point average in the league for the 2007-08 academic year with a mark of 3.04.

The Huskies' 2007-08 GPA was well in front of the 3.024 posted by Ball State's 420 student-athletes in 18 sports of 3.024. Central Michigan ranked third at 3.019 while Western Michigan came in fourth, percentage points back at 3.016.

The Institutional Academic Achievement Award is presented to the Mid-American Conference member whose student-athletes post the highest overall GPA in a given academic year. From 1994 to 2007, the award was based on cumulative grade point average. Beginning in 2008, the award is based on an annual GPA comparison to better reflect the academic performance of an institution's athletics program in a given academic year.

[Senior Associate Athletic Director Francine] St. Clair, who leads Northern Illinois' Student-Athlete Academic Support Services (SAASS) unit, noted that in addition to the change from a cumulative total to a single academic year, this is the first time that the league office requested raw data from the schools and managed the calculations, as opposed to each school submitting its own GPA totals.

You don't suppose some of the athletic departments engaged in creative accounting?

The basketball teams will be returning to class with the rest of the university on Monday.

10.3.09

THE FORTY YEAR BRAIN DRAIN. Trains for America invites readers to giggle at some high-speed-rail-skepticism from The Detroit News (motto: all the news that's fit to deliver on Wednesday and Saturday).
No matter where the high-speed rail is eventually located, the concern is that taxpayers will never see the end of their transit investment. Mass transit systems never pay for themselves.
Well, fine. I was surprised to find so many gravel or unimproved roads not too far from Detroit. It must be that the Infrastructure Fairy never got around to paving them, or perhaps she, like just about everybody else in Michigan who had any ambition, went someplace else.

The serious point: some infrastructure projects, including transportation systems, pay for themselves indirectly, by making possible sufficient economic activity that people bear the taxes.

Perhaps there's no point in building a high-speed line to Detroit, as there are going to be fewer people wanting to travel there. And perhaps a high-speed line to Grand Rapids is a regressive transfer, catering to parvenu Chicagoans with lakefront property in Harbor Country. (The old money is in Door County, on the windward shore of Lake Michigan.)

If the Hotelling Principle of exhaustible resources has any effect though, some alternatives to driving make sense.

The rapid increase in oil prices last year directly contributed to the economic downturn by gutting the disposable income of households around America. This might not have been hugely problematic, had households been able to continue borrowing to pay for consumption, but in combination with the credit crunch the effect was deadly. It was deadly, note, because Americans were not able to rapidly and easily substitute away from driving, thanks to the country’s settlement patterns and inattention to transit.

Meanwhile, the decline in gasoline prices that has taken place since July has been a major source of economic stimulus. Had prices not fallen so dramatically, consumption would have fallen by considerably more. Still worse, authorities might have been more reluctant to use fiscal and monetary stimulus, given the threat of ongoing inflation.

But this is a temporary respite. It’s worth pointing out that the most significant collapse in global economic activity since World War II barely managed to push oil into the $30 per barrel range. Even now, as economic outlooks remain dim, prices have edged back up into the neighborhood of $50 per barrel. Given the collapse in new exploration and investment that has accompanied the drop in oil prices, one doesn’t have to be a genius to predict the path of oil prices once recovery begins. And the rise in oil prices will be a drag on growth.

That drag will affect railroads, including electrified ones. The Principle of Substitutes is one of those economic laws of conservation that contribute to our reputation as the dismal science.
TROLLEY SPARKS. The Milwaukee School of Engineering has a model railroad club with an HO walk-in layout in the student center. As part of Model Railroad Month, the club hosts an exhibition of other model railroads. The college has converted some of the old Blatz brewery into public space, including enough room for The Milwaukee Light Engineering Society to offer train rides.


That's the second of the two trolley dining cars to come out of Cold Spring Shops. I'm informed that the association has a second duplex unit.

Across the street is another Turnverein (not to be confused with the still functioning Turnverein on Fourth Street that's better known for its fish fry than for its still-in-existence sport program). I must confess to some unfamiliarity with this part of Milwaukee despite having once lived there. The student center at Milwaukee School of Engineering includes a gallery of oil paintings of steel mills. A return trip is in order.


Sunday's weather was not conducive to driving, and it was making a mess of the airline schedules. I wonder if any of the people booked on that 8 am plane to Chicago got on the first train of the morning and took a cab from Glenview. (And what's up with the "closed" 7.12 to Montego Bay? I'm waiting for the 11.10 train.) The trains were warm, full, and close to time or on time. No logs, nap time.


The Hiawatha service might not be as frequent or as fast as the Acela Express or the Neubaustrecke. It's one that observers on the coast, as well as European visitors, ought be aware of.
With very few exceptions, city-to-city travel in the US by rail is, if available at all, generally slow and inconvenient outside of the Northeast. Visitors from other countries are shocked, given the large number of trips that are within a 100-400-mile distance but for which travelers are generally forced to go by air or personal car.
We're making some changes in the Chicago area. The Milwaukee service, although lavish by Amtrak standards, is dramatically reduced compared to, say, 1949, with competing 75 or 80 minute expresses on The Milwaukee Road and Chicago and North Western, and hourly limiteds on The North Shore Line.