Wel (un) fare

Let’s say that you are creating a tax policy for a new society, and you come to the question of corporate taxes. Which of the following do you choose:

1. You tax more profitable companies at a higher rate (so very profitable companies pay 35% of their income, less profitable companies pay 30%, and so on), based on their margins (or if you prefer, return on equity or return on assets or some other preferred measure).

2. The opposite of 1, You tax less profitable companies at a higher rate based on margins (or RoE or whatever).

3. You say that corporate profit is too complicated to compare rich companies vs poor companies, and instead charge a flat corporate tax on net profits.
3 is pretty much where America is right now, and I would argue that it’s probably the best outcome.  You can of course make a case for 1 if you want, (although I think it would be way to complicated to actually pull off intelligently).  There is no real reason for choice 2, either from a fairness or an efficiency standard.
***

Let’s pretend that you’re a 19th century industrialist, you run a steel mill or something. For the sake of this example, let’s say that the only thing you care about is making the most money possible, you pay your worker’s as little as you can and are always looking to save money, particularly on labor.

Now lets say the government is deciding whether to enact some form of a welfare program; details aren’t really important, except that you expect most of your workers to qualify whether or not they remain employed with you. Do you, purely from a selfish perspective, want the government to enact a welfare program?

There are two competing schools of thought.

1: Yes, you do, because government welfare means that you can pay your workers even less than before.

2. No, you don’t, because welfare means that: a) your employees will have more bargaining power (they can hold out longer, have a better alternative to negotiated agreement, can take a longer time to search for a better paying job); and b) there will probably be some contraction in the total labor supply as some fraction of employees choose not to work (or choose to work fewer hours), the contraction in labor supply leads to a higher price of labor (ie wages).

1 really doesn’t make sense except under certain extreme scenarios, for instance if people are working for literal subsistence wages and a reduction in income would literally kill them. And even then, only if the welfare program is small enough, once it provides enough benefit, the effects from item 2 overwhelm the effects from item 1. In general, I am confident in saying that social welfare programs increase the cost of labor for big companies.

***

Lets say you go into a Walmart, and buy a iPhone. Who does the cashier who checks you out work for? Who do they provide value for? Well, the obvious answer is Walmart, in that Walmart chooses whether to hire them, what wages to pay, writes their paycheck and makes them wear a Wal-Mart specific uniform. But in some small sense, they also work for Apple, in that there is some amount of value that they provide to Apple. The Walmart cashier is the end-point of ten thousand different value chains; in some way Apple (and General Mills, and Reebok, and Proctor & Gamble, and virtually every other company) all employ that cashier.

***

Bernie Sanders has introduced a bill (Stop Bad Employers by Zeroing Out Subsidies), or “Stop BEZOS” act, which seeks to charge low-wage employers for the total amount of public assistance that their employees receive. (See here).  So, for instance, if a Walmart worker gets 2,000 in public assistance, they would be taxed that full amount. This has been picked up by, of all people, Tucker Carlson, (See here).

I think this is an extremely bad bill, for three major reasons.

First, a purely moral/fairness reason. As a society we have decided that people should have some minimum standard of living, and have implemented various programs to pay for them. I strongly believe that we as a society should pay for them, that in effect everybody who can should contribute towards such benefits.

Apple has about 123,000 employees and yearly revenue of 229 billion dollars, or about $1.8 million in revenue per employee. (source, Apple financial statements). Walmart, on the other than, has about 2.3 million employees, and yearly revenue of about 500 billion dollars, or about $217,000 per employee. Apple in turn makes about three times more money ($61 billion in operating income vs $22 billion for Walmart). I’m sure that the average Apple employee makes a lot more than the average Walmart employee, but that has little or nothing to do with the generosity of the employer, and almost everything to do with the type of business they’re in and the difference in skills needed to be a hardware engineer vs a greeter. This bill would in effect place a major tax on the comparatively poorer corporation (Walmart, in one of the few comparisons where Walmart is considered relatively poor) while leaving the comparatively richer corporation (Apple) at a lower tax rate. Why? This goes back to the first question I posed, about tax rates for corporations why should the more profitable company pay less in taxes than the less profitable company? It’s not even that Walmart chooses to use lower-skilled labor, Apple does as well, they just outsource it to China or Foxconn (on the production side) and sellers such as Walmart on the distribution side.

Sure, you can say that Walmart can afford to give employees more, but you can say that so much more about Apple, Google, Facebook, Microsoft etc. The commanding heights of the economy are in information technology and finance. To suppose that retail should bear the burden of welfare is arbitrary and makes little sense. If we are going to support the poorest among us, then I think we should all contribute, (including through personal income taxes), but certainly there is no reason to suppose that Mark Zuckerberg has less means to give than the Walton family.

The second reason is the fact that, as demonstrated in my second example, employers don’t benefit from the welfare at least not in terms of reduced labor costs. In fact it probably raises their costs. Without a reduction in labor costs, there shouldn’t be

The third reason is that this policy would create horrible incentives from just about every angle. With greatly increased labor costs, companies would reduce low-skill employment, either by substituting with capital (more self checkouts, for instance), or just less staffing, as in reducing staffing in off-peak hours, for instance.

It would mean that there is a powerful lobby for reducing government subsidies, there would now be a major rich constituent for reducing all government benefits.

There would be a very bad incentive for employers to avoid giving jobs to the most needy. Some companies will find a way to ensure their employees aren’t needy, dont’ have kids, or are otherwise better off. This bill would make teenagers of wealthy parents a better option for many companies than a single mother of three. Finally, there are truly ghoulish incentives, some employers will insist that employees must not apply for welfare. This will no doubt be very illegal, but it will no doubt also still happen.

There is of course no countervailing incentive; this won’t increase the total amount of welfare available to the poor, it will only shuffle around dollars somehow, while moving more people off paying jobs, increasing their total welfare cost while reducing their total income.

Overall, the bill makes no sense, it is based on bad economics. It supposes that the burden of welfare should be on the employers closest to the employees, instead of to society in general (including to the most profitable companies). It assumes incorrectly that welfare programs decrease the cost of labor for major companies. And it ignores incentives which will lead to fewer low skill jobs and further reduces opportunities for the unfortunate.

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What we talk about when we talk about Stock Buybacks

So the other day I offhandedly referenced an article on Facebook that I really didn’t like, and thought I might expand upon my why I think it was so horrible.

The article dealt with stock buybacks, and came out very strongly against them. You can read it here: https://www.theatlantic.com/business/archive/2018/07/are-stock-buybacks-starving-the-economy/566387/

If you haven’t read it, it basically goes like this:

1: Companies are using a lot of money to buy back shares
2: This diverts cash from other worthy projects, such as investment in infrastructure, R&D, or paying employees more
3: Companies conduct buybacks as a means of moving their stock price in the short term, but because they’re not investing in their future, they are sacrificing their long term prosperity to artificially manipulate their stock, usually so executives can get bonuses.
4: Therefore, society would be better off if companies were to use that cash in better ways, such as pay dividends instead of buybacks

There are really three issues that the article jumps back and forth in between, sometimes without acknowledging so.

The first issue is to what extent our economy benefits the wealthy and/or the capital owners. This issue is of immense importance, but it is kind of a dead end to argue about.  Simply talking about how you don’t like it is merely complaining, and although it may be an issue worth complaining about, the complaints themselves won’t solve the problem.

The second issue is choosing between the short term and the long term. This is an empirical question, but at first glance, it appears to be sort of moral. After all, we the morality tales of the goose who laid a golden egg, the three little pigs, and the industrious ant vs the lazy grasshopper. All of which have the same general message, don’t get too greedy in the short term; you’ll pay for it in the long run.  But moral connotations notwithstanding, t is strictly a financial issue.  The decision to forgo a dollar today for two dollars tomorrow is not just a question that finance can provide insight into, it’s the question that underpins all of finance, the question finance was invented to address.

The third issue is of dividends vs buybacks. This is a boring, technical distinction; of interest only to finance geeks such as myself, and the CFO’s making the decisions. The differences are arcane, arise from tax law or market structure or weird behavioral equilibrium.  It is easily the least important of the three issues.

The article I referenced, and indeed the debate around buybacks overall, wants to argue point 1 (distribution of wealth in society), yet spends most of the time talking about point 2 (now vs later), mixing in point 3 (dividends vs buybacks). You can see this when it pivots from Tung and Milani’s arguments in favor of dividends: “Issuing cash dividends (regular or special) has a less predictable and manipulative impact on a company’s stock price—and thus is less prone to gaming by executives or activist investors for their own gain,” seamlessly to Senator Warren’s comment: “The surge in corporate buybacks is driving wealth inequality and wage stagnation in our country…”

If you don’t have the background in finance, you’ll probably miss this distinction. Tung and Milani are arguing from a very specific framework, that the act of returning cash to shareholders via buybacks is manipulative of the underlying stock price whereas returning cash via dividends isn’t. (I haven’t read their research so I can’t comment intelligently, only to say that a: I am skeptical of their claim, but also b: the argument itself appears to be withing the realm of possibility). Warren is referencing buybacks, but she is really talking about returning cash to shareholders, and there should be no reason why returning cash to shareholders via dividends or buybacks would affect levels of investment or employee compensation.

What the debate seems to miss is the fact that financial markets, while they may not be the best at allocating resources across people, are incredibly good at allocating resources across time. To believe that buybacks allow companies to prop up stock price in the short term while sacrificing it in the long run is to believe that there are a significant number of asset managers who are fooled by an easy trick. Changes in future expected earnings will effect stock prices today. This also holds true no matter what the time frame that the stock owners have. For instance, imagine you own stock in a gold mining company which you intend to sell next year to fund your retirement. The company today announces that they’ve discovered a rich new mine which they can begin mining in two years. Even though you intend to sell before the new mine opens, you will still profit.  The stock would increase the day of the announcement as people buy today in order to get the future profits, driving up the stock price. This is the whole point of the stock market, to exchange money today for future earnings tomorrow.

If buying shares lowers the expected future earnings per share of a company, it would decrease the stock price. If it increases the future expected earnings per share, it will increase it. (In case you’re interested, the decision should be made buy comparing the rate of return on existing future cash flows divided by the stock price to the rate of return on potential cash flows divided by the cost of the capital project; for instance if a stock yields 10% and the best available project yields 8%, then it makes sense to buy back shares. If instead the best available project yields 12% then it makes sense to fund the project before buying back shares).

To be sure, decision makers (either corporate boards or the asset managers) may have biases. They may not think that available projects are as profitable as they really would turn out to be. But most academics think the opposite is true, that company management is more likely to overestimate the profitability of future investments (via overestimating their own competence, of course); they are overconfident, or they seek growth for the sake of growth as management seeks to build an empire regardless of cost.

Of course, there are instances of companies buying back shares at the expense of the future. Perhaps the most famous is Sears Holding. When Eddie Lampert bought Sears and merged it with K-Mart, he spent massive amounts buying back shares, meanwhile he cut both capital expenditures (to about a quarter of even beleaguered competitor JC Penny’s level); and also slashed advertising. This led to a long decline of Sears, once valued at $19 billion, today Sears is only worth around $200 million. This may seem like the classic story that opponents of buybacks spread; buybacks happened in place of investment; store quality declined, the brand suffered, all of which killed the company.

But this leaves out a key component; the short term outlook from management. Lampert didn’t take over, buy back shares, then exit while leaving somebody else holding the bag. He’s still holding the bag; he’s lost billions (his actual performance is more complicated as there were spin-offs and loans and stuff, but I’m confident that although Lampert didn’t lose the full 99% that the stock went down, he’s certainly lost a hell of a lot). This is a story of misplaced optimism or hubris or plain old stupidity; but its not a story of short termism. He really thought that buying back shares was the right move.

All of this leaves us with how we talk about buybacks. People (specifically the journalists, op ed columnists, and senators) want to be talking about the role that capital plays in society; about how the pie gets divided. But its hard to talk about in any way other than complain, to propose meaningful changes about how society functions to achieve those ends. So we end up talking about adjacent issues, in this case we about how buybacks starve some other useful function of cash, then buttress the argument by throwing in some obscure point from an academic which, if examined closely enough, doesn’t actually apply to the argument. We want to think that there’s some easy solution, that there’s some villain, that if we just removed their ability to manipulate the market, that they’d be left with no choice but to invest in the future, increasing wages and restoring economic balance to America. But alas, if such a policy exists, its certainly not buybacks. The fact of the matter is that many companies simply don’t have useful investments. How many more stores can CVS open before they start to simply siphon customers from existing stores (probably not too many). How much more money can Apple spend on R&D before its funding projects with no hope of completion? We want to blame economic inequality on something, but buybacks simply isn’t it.

Does Whatever a Teenager Can

The greatest work of American art is, in my opinion, The Amazing Spider-Man.

A comic book originally created by Stan Lee and Steve Ditko, it chronicles the adventures of Spider-Man, a teenage boy who, having been bitten by a radioactive spider, develops super-powers, including the proportional strength and speed of a spider, the ability to stick to walls, and a sixth sense for danger. He uses these powers to battle evil villains such as Doctor Octopus, a man with 4 robotic arms, and Electro, who can control electricity.

Of course, you already know this. Spider-Man is the perhaps the most famous superhero, and is as recognizable as Mickey Mouse.  There have been six major films about Spider-Man and at least as many cartoons over the years.

Most super heroes have a very clear single nemesis. Superman has Lex Luther. Batman has the Joker. The X-Men have Magneto. The Fantastic Four have Dr. Doom. Captain America has the Red Skull. Each of these examples provide not only the means for drama for each hero, but also represent the antithesis of the hero. Batman is the personification of law and order, while the Joker represents chaos. The Fantastic Four are primarily about how science can benefit mankind, while Dr. Doom represents technological progress gone awry and used to repress. The conflict between the X-Men and Magneto is about the how outsiders relate to the community, whether to engage in it or rebel against it.

With Spider-Man, there doesn’t seem to be a single villain the way there is in other comics. You could argue for Dr. Octopus (who was in a very large number of issues, especially towards the beginning of the series), the Green Goblin (the central villain in the most famous story line), or Venom (btw, Venom sucks; the introduction of Venom is pretty much when ASM stopped being good). Other candidates include the Kingpin (a crime lord), and the burglar who originally killed his uncle Ben in Spider-Man’s debut (Amazing Fantasy 14, for those who care).

But none of those feel right. Most are fairly generic, there’s no real reason most of them couldn’t be villains in other comic books. In fact, some of them are, the Kingpin is the central antagonist to Daredevil. The reason that none of the villains feel like the central antagonist is that none of them are the central antagonist. They’re temporary obstacles to overcome; they may provide the drama in any given issue, but they represent nothing in the grand scheme of things. Sure, the Green Goblin killed Gwen Stacy, perhaps the pivotal moment in all of the comic. But the Goblin’s role was almost irrelevant; the plot didn’t revolve around the Green Goblin killing Gwen Stacy, it revolved around Gwen Stacy dying. There would have been no real change to the Spider-Man character if Mysterio or the Vulture killed her.

So how can I make the bold claim that The Amazing Spider-Man is the best work of American art if there isn’t any real overarching conflict? Simple, Spider-Man did have a nemesis, one better than any other comic book, and infinitely more relatable and relevant to its readers. The real nemesis of Spider-Man is Peter Parker. The central conflict of Spider-Man isn’t between two people with superpowers fighting for good or evil; the superpower conflict is the superficial conflict. The real conflict is between the goals, dreams and ambitions of Peter Parker, a mild-mannered teenager who loves science, photography, and just seems to want a girlfriend, and the responsibilities that Parker has because he’s the only one who can stop whoever the supervillain of the week is.

Peter Parker placed his responsibilities as Spider-Man above his own ambitions; and as is the superhero cliche he felt he could never let anyone know he was Spider-Man, lest they be used against him (ie, a supervillain kidnap his girlfriend,for instance). He gets these awesome powers, and instead of being liberating they’re confining. His mantra, that with great power comes great responsibility, determines everything that he does. He constantly lets people down in his life (standing up dates, for instance) in order to save innocent bystanders. He cannot quit being Spider-Man because that would allow evil to triumph and cannot even depend on his friends or family for emotional support. The great tragedy of Spider-Man is that the more he tries to serve the world, the further he drives himself away from everyone he cares about.

In a very real way this is what being a teenager is like. The system of emotional support children have is, if not gone, changed. Most teenagers won’t run to their parents with every problem the way most children will; if the typical image of children is a screaming toddler, the typical image of adolescence is the brooding teen bothered by something but unwilling or unable to communicate it. For the first time, teenagers decide to compartmentalize their lives, realizing that some things are “cool,” some aren’t; and will start to mold personas to fit in. in doing so, they don a sort of secret identity, being one person at school or in social events, while another very different person while alone. Teenagers struggle with things like romantic attraction and self worth for the first time. “What do you want to be when you grow up” ceases to be a idle question and starts to be something that needs attention and hard work. And the fears associated with these things are often dealt with alone; I remember how horrifying my future seemed when I was in high school. How it seemed like everything I did had an enormous impact on my future possibilities, and how I felt totally unqualified to make any decisions about it, and how I felt I needed to put on a brave face for my parents so they wouldn’t worry, and how all this came together in an incredibly isolating fashion. I had giant concerns and no way to deal with them except to power through and hope for the best.  And more than anything else, even though virtually all of my peers were going through something similar, even though all the adults in my life went through this themselves, I felt that I had nobody I could talk to.  The burdens I bore I bore mainly alone.

Obviously, the things that typical teenagers deal with are (hopefully) not as life or death as the things Spider-Man deals with, but they don’t seem that way to teenagers. With the benefit of hindsight, my first real crush seems almost laughable, but in no way was it laughable to me, it caused me angst and confusion and feelings of joy and worthlessness, of hope and desperation and confusion wrapped up together.  I recognize now how it was foolish, but it meant the world to me at the time.  Eventually I grew up, I learned how to deal with emotions, and I learned how and when to communicate my feelings.

Eventually, Peter Parker grows up, and the conflicts between himself and his alter ego begin to get resolved. Peter marries Mary Jane, and has somebody who he can reveal his true identity to, someone who knows him for who he is and while useless in a battle against a supervillain, provides support and encouragement. The dividing line between the public perception of Peter and Spidey remains as stark as ever, there will always be personal you and professional you, but in private, Peter and Spidey are at peace.

Perhaps the finest moment in all of Spider-Man, or in all of comics, comes in an otherwise weird period of Spider-Man, the mid 1990’s. Most of the comic revolved around the much maligned clone saga, a goofy story line revolving around whether Spider-Man was a clone or not. Meanwhile, Aunt may is dying. In her final issue, she takes Peter to the top of the Empire State Building and reveals that she knows, that she always knew, that Peter is Spider-Man, and that she is deeply proud of him.

What a wonderful message; that we’re never alone as we think we are; that even if your friends and family can’t fight your battles for you, that they still know that you’re facing struggles, and they’ve always been proud of you.

On Charlottesville

There has been a group of people who have been making arguments for what may be called white nationalism. They are essentially taking the ideology and updating it with philosophical underpinnings. They’re changing the image of the white supremacist from a compound dwelling, tattooed skinhead to a khaki wearing, clean shaven suburbanite. These new white supremacists are better looking, and when they’re not in a mob I would even venture to say that some of them are polite and well mannered.

This doesn’t make them better than the traditional neo-Nazi. It makes them worse. It makes them worse because they can’t hide behind drug problems or abuse or some other excuse. They’re not running to Nazism because they want to rebel, they’re joining white nationalism because they really believe it. The alt-rights aesthetic makeover and philosophical mask make them worse than neo-Nazis because it makes them more like regular Nazis.

In essence, they’re trying to make hate more attractive; they’re trying to fool you.

***

This past Saturday, a group of white nationalists, neo-Nazis, Klansmen, and their ilk marched on Charlottesville, VA, ostensibly to protest the removal a statue honoring confederate general Robert E Lee. This was a minor goal, if that. Should the statue be torn down tomorrow, they will have accomplished everything they wanted and more.

The name of the march was “Unite the Right.” Since World War 2, Nazi’s have been person non grata in American politics, welcome in no party. While we have by no means been perfect in race relations, we have at least kept naked segregationists out of power for the past five or so decades.

“Unite the Right” aimed to change that. They want a seat at the table; for the alt-right to become a voice within the Republican Party.  David Duke, “former” Klansman and neo-Nazi, of whom former President Bush Sr said “has a long record, an ugly record, of racism and of bigotry,” tweeted to Trump on Saturday that “I would recommend [President Trump] take a good look in the mirror & remember it was White Americans who put you in the presidency, not radical leftists.”  He was expressing just that, a belief that white nationalists like him are part of the coalition that put Trump in the White House.

On Saturday, Trump (who had campaigned partially on the idea that we need to name Radical Islamic Terror as such to defeat it), denounced these protesters in the gentlest possible terms; condemning not just the protesters but the counter-protesters as well, writing “We condemn in the strongest possible terms this egregious display of hatred, bigotry and violence on many sides, on many sides.”

As an aside, for anyone who thinks this moral equivalence is OK, I have three points to make about that:

1. This country has a troubled history of racism; its not an exaggeration to say that a majority of our social problems even today are due to the legacy of slavery, segregation and bigotry, and the lingering insidious racism that millions of Americans are forced to deal with every day. The Klansmen, Nazis and white nationalists represent and seek to reintroduce this evil, the anti-fascists do not.

2. The white nationalists drove a car into a crowd, injuring 19 and killing one. This wasn’t an accidental killing, but rather a white nationalist decided to use his car a weapon. I don’t support the violence of the counter-protesters, but to equate it with the violence used by the white nationalists is just wrong, one side killed, the other didn’t.

3. The white nationalists chanted things such “blood and soil,” and “Jews will not replace us.” While this is of course horrible, their last chant is the most chilling. “Heil Trump.” (1 ) Of course, no politician is responsible for the acts of all of their supporters. But when a group of Nazis favorably equates the President with Hitler, the President owes it to the nation and himself to denounce the group and make it totally clear that he does not represent that group or its interests.

To his credit; Trump denounced the protestors by name; on a Monday, 48 hours after the murder of Heather Heyer, after just about elected Republican and Democrat in America urged him to.

That denunciation lasted less than a day. Today, Trump held a press conference about something (maybe infrastructure), but during questions, Trump said ” I’ve condemned neo-Nazis. I’ve condemned many different groups. But not all of those people were neo-Nazis, believe me. Not all of those people were white supremacists by any stretch. Those people were also there because they wanted to protest the taking down of a statue, Robert E. Lee… But you also had people that were very fine people on both sides… You had many people in that group other than neo-Nazis and white nationalists. O.K.?”

The aim of the alt-right, is to dress up an old hatred in new clothing, and sell it as respectable. They can’t fool me, and I doubt they’re fooling too many people. But it sure looks like they may have fooled the President. Fooled him into thinking that a lack of tattoos somehow means they’re not Nazis. President Trump is either woefully uninformed about what happened (despite saying 11 times that he waited until all the facts came out to make a statement), or he is endorsing some forms of white nationalism and white supremacy.

***

I have this illusion, about myself. Its that there is nothing left that Trump can do that can shock me, that he has no further capacity to disappoint me. And every so often, he does. Today was one of those days. Its hard to believe, but I guess I still thought that Trump had some decency left in him, that he could recognize evil in most obvious forms.

The Deep State

One of the first things that Trump did as President was to sign an executive order barring immigration from certain majority Muslim countries, as well as reducing the number of refugees admitted to the US, among other things.
The actual text of the order said nothing about denying entry to permanent resident (ie, green card holders).    (you can read the text here: https://www.whitehouse.gov/the-press-office/2017/01/27/executive-order-protecting-nation-foreign-terrorist-entry-united-states ).  Yet, with its initial roll out on January 27, green card holders were denied entry to the US.  On January 28, DHS clarified that green card holders were included in the ban.  Two days later, they reversed their position, deciding that the ban did not apply to green card holders after all.  (https://www.propublica.org/article/trump-executive-order-could-block-legal-residents-from-returning-to-america).  (eventually, the ban was blocked by a federal judge, and the Trump administration replaced it with another order which specifically exempted permanent residents.  That order was also blocked by a federal judge, partially reversed by the supreme court, which will presumably make a more complete ruling soon).
In executing the order, there was apparently no clear direction who was and wasn’t actually banned.  The necessary training, review and explanation to the DHS and Customs agents who would make the actual decisions was inadequate.  What I imagine happened is that some agent didn’t know what to do with a green card holder, so they asked their manager, who asked theirs… and at some point somebody made the decision that it would be better for their career to keep somebody out than to let somebody in.  This decision soon became the law of the land, for at least two days, until the higher ups reversed these decisions.  I am of course speculating, for all I know it was the President who decided in the first place, and then reversed his own decision two or three days later.
Yet this has all the hallmarks of bad management and bad communication.  An order was issued, and it was up to the department to figure out what that order actually meant.
All this could be chalked up to a rookie administration within the first few weeks of its administration.
***

On July 26, Donald Trump tweeted ( https://twitter.com/realDonaldTrump/status/890193981585444864 https://twitter.com/realDonaldTrump/status/890196164313833472  https://twitter.com/realDonaldTrump/status/890197095151546369  ) that Transgender individuals would be barred from military service.  While he made the decision “After consultation with Generals and military experts” he apparently did not inform the DoD; as they were reported caught off guard (http://www.washingtonexaminer.com/pentagon-says-trumps-transgender-tweet-was-not-an-order/article/2630201 ), and are awaiting more formalized instruction to begin implementing the policy.  Now, there may be some distinction between orders on the one hand and announcements on the other.  There may be reasons to ask clarifications during or before executing those orders.  Finally  there may be good reasons not to obey orders posted on twitter (or other social media sites), as they may be vulnerable to hacking or spoofing.
Yet despite this, it seems that the military is, in the smallest possible way, disobeying an order from the President.  Civilian control of the military is one of the hallmarks of a free society.  The awesome power of the military must be subordinate to our elected officials; doing otherwise invites military dictatorship.
Of course, I’m engaging in a little hyperbole.  Delaying implementation of an order until clarification is worlds away, in degree and in kind, from placing a favored candidate in office, or placing political opponents under military arrest.  The military’s actions are in many ways reasonable and may in fact be the best course of action.

***
One of the things that the alt-right wing of the conservative movement complains about is the deep state.  In essense, the theory goes, the true source of power in the US government isn’t the top, but the middle.  Middle to upper level government officials and employees are a type of rogue government within the government, acting not based on the will of the people but based on their own ends, enacting their own policies, working towards their own agendas.  The deep state is of course, totally liberal.  It is the deep state which is holding back Trump from truly making America Great Again.  The deep state is the source of the leaks plaguing the administration, it is really the source of the Independant Counsel investigation.
Moderate Conservative David Frum’s rebuttle of this is too good to pass up.  “‘deep state’ is code for ‘the rule of law,'”  ( https://twitter.com/davidfrum/status/865542966814818305 )
However, while most of the details of this stance of the alt-right (or most stances of the alt-right, for that matter) is somewhere between idiocy and totalitarian wish fulfillment, there is a kernel of truth in the theory.   The government should be accountable to the people; and within a representative democracy the accountability flows through our elected officials, especially the President.  While we may want environmental policy heavily influenced by environmental scientists, military policy influenced by generals, economic policy influenced by economists, et cetera, at each point we want one thing to be true: that the ultimate authority on any policy should be the citizenry.
***
Any time a person pushes some boundary or crosses some line, it becomes easier to do.  Stealing something small makes it easier to steal something big.  When you get used to something, it can be hard to stop doing. Delaying an implementation of a order until clarification doesn’t end civilian control of the military.  But it will take a small chip, a tiny sliver from that social norm.  With vigilance, intelligence, or even good luck, it will be replenished, and it will be as if nothing ever happened.  Yet if this continues; if we have orders announced but not formally given; then we’re essentially training our generals to decide on a case by case basis which orders to ignore and which to follow.
***

There are other norms in government as well.  The justice department should report to the citizenry via the President.  Yet there is an important counterbalance, a social norm which is more important.  And that is that the Justice Department should not be used for the personal aims of the President.  At the beginning of Trump term, I may have been a little worried that this may happen, that Trump would stack the department with his cronies, and it would be used to persecute Trump’s political opponents.

I am not worried about that anymore.  Trump, it seems, does not have the cunning to actually accomplish much nefariously.  When he laments that acting FBI director Andrew McCabe is somehow in league with Hillary Clinton and openly calls for his firing; (https://twitter.com/realDonaldTrump/status/890207082926022656 https://twitter.com/realDonaldTrump/status/890208319566229504 ), there is no action taken.  No one will rid Trump of this meddlesome director.  Far from obeying him, Attorney General Sessions, one of Trump’s first major supporters, just kind of ignores him.  There is simply no way the actual rank and file of the department would go along with prosecuting the President’s enemies on his orders.
But imagine what four years of openly and almost brazenly ignoring your superiors will do to you.  Sure, whoever replaces Trump will garner more respect.  And sure, the rank and file may not consciously decide to rebel or disobey or ignore.  But they may get used to it, and old habits die hard.
The deep state is a problem.  A government of the people, for the people, needs to be run by the people.  Far from attacking it however, Trump has only made it stronger, and the circus atmosphere which has pervaded the

A Skeptical Audience

So Donald Trump fired FBI director James Comey, as everybody knows by now. This immediately drew parallels to the Saturday Night Massacre, where Nixon ordered his Attorney General to fire special prosecutor Archibald Cox.

At the heart of the matter are three questions. First, whether Comey was the best person for the job. The second question is whether this will hinder any ongoing investigations, specifically the investigation into Russian involvement in the Presidential election; and what if anything will be done to safeguard these investigations.

The third question is the most important, and is simply; which of the first two questions did Trump answer when firing Comey? That is, did he fire Comey because he felt Comey wasn’t a good director? Or did he fire Comey specifically to stop the Russian investigation (or any other)?

If it’s the first, and Comey wasn’t the best fit for the job (or even if Trump just honestly thinks so), then there’s no real problem. If it’s the second, then basically Trump is abusing the office to enact a personal agenda, using the department of justice as a political tool, and obstructing justice. Essentially, what Trump did is either a standard (if somewhat unusual) way of acting as President, or an impeachable offense; either it was as bland as Bill Clinton dismissing FBI director William Sessions, or as corrupt as Nixon firing Cox.

* * *

Having just finished a class on negotiation; I was struck by an study by Huthwaite inc, called “The Behaviors of Successful Negotiators” which looked at (no surprise here) the behaviors of successful negotiators. It was one of those truly great readings, the point of which seems obvious to me after reading it, but never once occurred to me beforehand. There were some behaviors which were kind of boring, (such as skilled negotiators talking more about long term topics), some which were somewhat reasonable but not much use elsewhere (skilled negotiators don’t have a predetermined sequence of when they wish to discuss which issue), but some which were meaningful and profound.

The fact I was most impressed with were the fact that skilled negotiators rarely used words like “generous,” “fair,” or “reasonable” to describe their own offers. Within a negotiation, calling something “fair” which you present, even if you think it is fair, is unlikely to convince your counterparty; it will only serve to aggrevate him or her if they don’t think its fair.

The second fact which I thought was really valuable was that skilled negotiators often made fewer arguments in their favor; but those were typically better quality. That is, if you’re trying to convince a hostile (or even skeptical) audience of a fact, and you present 5 arguments, they’re naturally going to latch on to the weakest argument you make. People are not rational Bayesian calculation machines, 2 strong arguments in favor are greater at convincing humans than 3 strong and 3 weak arguments in favor.

In both cases, the lesson is similar, in convincing a skeptical audience less is often more. Using more neutral language is more persuasive than persuasive language, and using fewer arguments is more persuasive than using many. The stronger you believe something (or come across as believing that thing), the less persuasive you can be to a skeptical audience.

* * *

Today, while packing up my apartment, I was listening to a several months old episode  of Bill Simmons’ podcast, the BS report. Simmons’ guest was one of my favorite essayists, Chuck Klosterman. In it, they were discussing who the NBA MVP will be, Russell Westbrook or James Harden. Klosterman had a very intriguing argument, which essentially went like this (I am of course paraphrasing):

1: The people who favor Westbrook think its obvious that the MVP should be Westbrook and there’s no other choice. (Westbrook averaged a triple double over the season, something that hasn’t been done since the legendary Oscar Robinson).

2: The people who favor Harden think its an interesting question and there are arguments for multiple candidates, but Harden is overall their favorite.

3: The people who are undecided will see the above two arguments, and almost tautologically will relate to 2nd one more. Because (by definition) they haven’t made up their mind, they can relate to those who think its a close race, who favor Harden.

Its an almost brilliant idea, and I have no idea if it will be correct or not, but it has a certain logic to it. Underlying it all is the same lesson, your ability to convince a skeptical party of something can be inversely related to the strength of your own belief.

* * *

Trump’s approval rating is low, but its not historically low. 538.com has him at 41%; Gallup had Obama at the low 40’s for much of 2011 and 2014 (of course this time in 2009 Obama was in the low 60’s, 20 points better than Trump is now.) Gallup had W Bush’s low at 25%, HW Bush at 30%, Clinton at 40%, Reagan at the mid 30’s, Carter at 30%, and Ford at 40%. (the counterclaim is that none of these Presidents were this unpopular this soon in their Presidency, but that’s kind of beside the point).

I’m not a Trump fan, and I certainly don’t think I will be. I see a number of things which Trump has done as being bad, corrupt, or incompetent, and the demeanor in which he has conducted himself has at times seemed unhinged and almost crazy. This to go with his numerous scandals, problems, gaffes, and remarks he made while campaigning and as a public figure.

Yet as much as 41% of American voters still approve of Trump. Why is this?

* * *

All this brings us back to President Trump and James Comey. If you’re already inclined to believe that Trump is a despot you will probably see the Comey situation as analogous to the Saturday Night Massacre, and Trump as obstructing justice. If you’re a fan of Trump you’re much more likely to see the situation as nuanced, or as analogous to Bill Clinton dismissing Director Sessions. And if you’re in between? Well, articles like this probably won’t convince you.

I think that those people who either support Trump or at least still giving him the benefit of the doubt just see all the criticism blending together, drowning itself out. They see Trump detractors reacting to firing Comey in the same way the reacted to Trump’s February 16 press conference. As long as they see the tone and not the substance of their opponents’ arguments, they’ll get no new information, and of course won’t change their minds.

Take an article like this, very anti-Trump, which purports to list all the bad things Trump has done. Yet it seems like half the things listed aren’t things Trump has done, but rather things he’s said or tweeted. Going back to the fact about skilled negotiators, how they will use fewer stronger arguments. Then compare that to the list in the nymag article. For many of the “Trump said this” arguments, if you’re not convinced now, you may not be ever. And if that argument won’t convince a skeptic, then making it will probably make better arguments less convincing.

With a skeptical audience, the strength of your beliefs can often work against you. There’s no shortage of liberal antipathy towards the Trump administration, yet I wonder if the strength of the left’s beliefs is actually hindering its ability to make a convincing argument.

Abimelech and Ben Carson

The Israelites said to Gideon, “Rule over us—you, your son and your grandson—because you have saved us from the hand of Midian.” But Gideon told them, “I will not rule over you, nor will my son rule over you. The Lord will rule over you.” – Judges 8:23

“I would love us to bring back our Judeo-Christian values and begin to teach those things and emphasize them at a time other than a political election. Let’s do that. But right now, the train is going off the cliff.” – Ben Carson

In the book of Judges, we see the Gideon and 300 men defeat the Midianites (Gideon originally had 32,000, but the Lord would only act with fewer men, so that Israel would know that it was His doing). After Gideon saved the Israelites, they wished to make him king, as they were getting kind of tired of the whole having faith in God to raise up a judge needed. Gideon wisely refused, but after he died, the Israelites made his son Abimelech rule over Israel. Abimelech was a horrible ruler, instituting Baal worship, murdering his brothers to consolidate power, and waging war against his own cities until he was eventually killed by a woman throwing a rock on him.

Throughout the old testament, whether it’s the Israelites building a golden calf, or Saul attacking the Philistines before commanded by the Lord, there is a pattern of behavior for the Israelites: if they did not abandon the Lord altogether, they at least hedged their bets. The idea of having a King was simple, a powerful ruler could rally the Israelites, have a standing army, plan military strategy, and protect Israel from her enemies; and in so doing keep the alters to Baal and the Asherah poles from Israel. But of course, the Lord saves by many or by few, and the might of Gideon and his 300, or of Jonathan and his armor-bearer, or of David and his sling, are greater than any King or army. The kings the Israelites wanted so badly ended up worshiping Baal and building Asherah poles.

Today, we see that many in the Evangelical Christian community have a great need for a King, or at least a President. Ben Carson wished that we would return to “Judeo-Christian” values, but, “at a time other than a political election.”

Jerry Falwell Jr. supported Trump, arguing that the power of the Supreme court justices which Trump will appoint are of far greater importance than allegations of Sexual misconduct hurled at Trump.

Franklin Graham supported Trump’s travel ban, saying “Some people seem to have forgotten that the priority of the president of the United States is protecting the Constitution and the safety of Americans. That’s exactly what President Trump is trying to do. Taking action to secure our borders had to start somewhere. Is it perfect? Maybe not, but it is a first step.” Yes, Abimelech will may not be a perfect ruler of Israel, but we have to start somewhere.

Graham has also said “We want to love people, we want to be kind to people, we want to be considerate, but we have a country and a country should have order and there are laws that relate to immigration and I think we should follow those laws.” (as an aside, can we notice the horrible bait and switch presented, debating whether a law is good or not by declaring it the law is absurd in democracy, the whole point of a democracy is that laws are up for debate). He also said that the debate over refugees is “not a Bible issue.”

There are many Christians who are concerned about the supreme court, about religious liberty, about abortion, or about the Johnson amendment. But being a Christian doesn’t just mean working on behalf of God; it means working according to His rule. Many in the Evangelical movement have allied themselves with a man who has become rich beyond belief by building towers which he put his name one. A man who has fleeced his customers, who cheated on multiple wives, a man who used to wealth to buy beauty pageants in order to go back stage and watch the contestants undress. The power of the Supreme court, with its awesome power, is worth allying with such a man, so it is thought. As Abimelech would protect the Israelistes from the Midianites, so too will Donald Trump protect us from ISIS and the democrats.

Solomon, when he became King of Israel, sought to forge alliances with the neighboring countries, and he did that mainly through royal marriages. Yet is was these marriages which brought destruction to Israel, as his wives caused him to stop following the Lord and begin following foreign Gods. Today, many on the religious right are metaphorically in bed with the Trump administration, perhaps because they believe they can change him or bring out the best in him, perhaps because they believe that however imperfect, he is better than any alternative. Yet they should be very careful, lest the Trump administration change them.

As Christians, we’re called to transform our world, to speak out against injustice, to fight iniquity, to provide homes and jobs, protect the innocent. Taking part in politics is part of this; I’m not suggesting we eschew politics altogether (if I was, I wouldn’t be writing this essay in the first place). But politics is inherently dangerous. If we become too focused on the power of this world, we lose sight of who we are, we ally ourselves with evil people and fall not only to the evil we sought to fight, but to the evil within ourselves as well.

Alternative Facts

1: Perhaps the first major news story during Trump’s Presidency was estimates about crowd sizes. Sean Spicer claimed that Trump had “the largest audience to ever witness an inauguration — period — both in person and around the globe.” This turned out to be unverifiable at best, and is almost certainly incorrect (the most accurate crowd size estimates come from aerial photographs, which are prohibited during the inauguration, or photographs from tall buildings, of which Washington DC has very few). Most available evidence shows that Trump had a much smaller audience than Obama, perhaps one third the size. When questioned about public transportation numbers in particular, Spicer responded: “At the time the information that I was provided by the inaugural committee came from an outside agency that we reported on. And I think knowing what we know now we can tell that WMATA’s numbers are different, but we were trying to provide numbers that we had been provided. That wasn’t like we made them up out of thin air.”  (So, just for the record, the administration is uncritically repeating information given from a third party it didn’t name).

2: Trump’s bizarre press conference had him, among other things, say that he had the highest electoral college vote since Reagan, which he didn’t, George HW Bush, Bill Clinton (twice), and Barack Obama (twice) have all had higher margins of victory. When called on that, he said he was “given that information.” How is it that Trump could have possibly gotten this wrong? It’s not like it’s an obscure fact; he had to have been studying the electoral maps and attempting to find paths to 270. Not knowing that Obama had 365 or 332 votes (in 08 and 12 respectively) means that Donald Trump is completely unaware of the most basic facts surrounding the task he dedicated about 2 years of his life to.

3: During a conference with the National Sheriff’s Association, Trump said that “the murder rate in our country is the highest it’s been in 47 years.” which isn’t true, the murder rate in America is much lower than the peak it hit in the 1980’s. What did happen is that the murder rate increased from 2014 to 2015 by a lot, the highest increase in 45 years. Now, I can see how somebody would confuse the two, it’s fairly easy to confuse something and its first derivative. Yet the two things are entirely different, have different meanings, pose different problems, and presumably should be attacked with different strategies. The President cited the correct statistic before, so perhaps it isn’t that bad, perhaps he merely mixed his words. But if he didn’t; if he doesn’t understand the difference between the a number and a change in that number, that speaks to a severe lack of understanding of basic statistical principles.

4: In arguing in favor of the travel ban on ABC news, and then twice more (on MSNBC, and during a press briefing), press secretary Spicer spoke of the terrorist attacks in “Atlanta, San Bernadino, or the Boston bomber.” Spicer later clarified that he meant to say Orlando instead of Atlanta; which again could just be that he misspoke, it’s a fairly easy mistake to make, both cities are in the Southeast, and as words they’re quite similar (each have “lan” in the middle). But on the other hand, Spicer’s only job is to communicate. Furthermore, he used it in the same way each time, alongside the San Bernadino and Boston terrorist attacks. Whether it was a simple mistake or a Spicer really did not know what city the terrorist attack happened in, it raises questions about the way information is gathered and disseminated in the white house.

5: Kellyanne Conway, in arguing in favor of the travel ban, cited the “Bowling Green Massacre.” There of course, was no massacre at bowling green, two individuals were arrested in Bowling Green, Kentucky, with regards to a plot which aimed to send weapons to Al Qaeda, which is of course bad, and its very good that those men are behind bars, but in no way shape or form was there a massacre.

There are many other untrue statements, exaggerations or miscommunication that the Trump administration or Trump himself has spoken about. (Such as Hillary Clinton giving 20% of the US’s uranium to Russia, for instance). However, these are different, in that there is strategic advantage in getting people to believe, (and/or the truth is confusing enough that the simplified statement is easier to understand than the truth. For instance, the State department approved a deal to sell the company which produces 20% of the US’s uranium to a Russian company; however the company is not allowed to export this uranium; the company can profit from uranium mining, it can’t decide where the uranium goes). With these other statements, Trump is essentially lying to us, and lying is, unfortunately, politics as usual.

What really worries me is that the administration is lying to itself, that it can’t seem to separate truth from fiction on something as straightforward as an electoral vote count. Something which should take all of 2 minutes on the internet to verify, and which Trump and his political aides should all have committed to memory. Every person has a tendency to give more weight to facts which benefit themselves or which reinforce a preconceived position. Yet this administration seems to do it on overdrive; its only been a few weeks, but we’ve already seen a number of instances which Trump and his team have not just been wrong, but have been wrong in a way that has no real benefits to himself, his agenda or his country. The basic inability to not just tell, but determine the truth of easily verifiable statements implies a inability to understand the world in complicted matters, and should be truly worrying to us all.  Trump really seems to be living in a world of his own making, while governing the world we live in.

Follow the money

To absolutely nobody’s surprise, towns in Massachusetts with higher median household income do significantly better than towns with lower median household income. You can see a nice little scatter plot here for HH income and percent proficiency (average of math, English and science for a school district).

Other than the hard cap at 100 (no matter how well funded a school is, it’s not going to have more than 100 percent of its students passing); its a really damn good correlation.

Proficient Scatterplot

 

Here’s the same data but with advanced:

 

Advanced Scatterplot

It’s even more clear (also, the hard cap doesn’t really come into effect). A full 65% of the variance in advanced test scores can be explained by median household income.

So whats going on here? Well, the obvious idea is that these schools have more funding than poor school districts; this leads to better schools. Is that true?

In Massachusetts, the school system with the least per pupil expenditures is East Bridgewater. Yet they are above average in the MCAS (the state testing regime) for proficiency in English, Math and Science. The highest is Cambridge, yet they are below average in English and Science. Well, those are just anecdotes; so lets talk data:

I ran regressions for percent of students who are proficient in English, Math and Science and who are advanced in English Math and Science, all against per pupil expenditures.

The result, of the six regressions, none of the test scores were positively and significantly correlated with expenditures. Two, (percent of students who are advanced at English and percent of students advanced at math), were negatively correlated at p < 1%. Percent of Students advanced in Science was negatively correlated with expenditures at p <10%. The other three were not significant, but all the signs were negative.

Here’s the scatterplot for  for the percent of students advanced at English (with a trend line):

Eng Adv Scatterplot

The answer is no, it is not explained by (only) funding. If anything, funding is negatively correlated with test scores (ok, this is a cheat, I’m doing two single-linear regression at the same time and comparing them which is kind of a statistical bad thing. I did run a some multiple linear regressions, which don’t change much, although the the sign on funding flips to positive but not significant for advanced; the sign for advanced is still negative but also not significant).

This is weird at first glance it appears that rich towns have better schools, but that this has nothing to do with funding.

One theory is reverse causation; that is some school systems are randomly good, which attracts well off people. After all, school systems are probably the number one concern for for families in choosing which town to live in. There’s a ton of truth in this, I imagine. But i highly doubt its the whole story.

The most likely theory is that, for whatever reason, children of well off families are more likely to do well then children of less well off families. Whether that thing is due to culture, genetics, or other economic reasons (better access to healthcare as an example), I don’t know, but I think this is very important.
So here’s the aside where I’ll talk about how I wanted to finish this. I wanted to make points about culture, about moral reasoning, about economic aid and welfare. And I’m realizing that I’m just not able to do those topics justice, at least right here. So I’ll close with one thought.

The above analysis should scare you. Because, basically, the rich are getting richer. And its not because we just poor resources in to the rich districts and starve resources from poor districts. If it was we’d almost have reason to celebrate. All we’d have to do to fix schools is just pass a bill and move money around; but its just not that simple.

 

(all stats regarding education from http://profiles.doe.mass.edu/state_report/mcas.aspx)

Housing Crisis

Lets imagine 4 groups of people: responsible rich people, responsible poor people, irresponsible rich people, irresponsible poor people.

Everybody wants a house. Banks won’t lend to poor people regardless of how responsible they are, but they’ll lend to any rich people, regardless of whether they are responsible or not (and the rich will not default even if they’re irresponsible).

The government sees many advantages to home ownership, so it decides to get responsible poor people to buy houses.

Since banks won’t lend to them, the government makes it much easier for poor people to borrow.

Who takes advantage of this? Responsible poor people make a decision about how they can pay off debts, and some of them are helped by the lower lending standards, so some portion of responsible poor take out loans. The irresponsible poor take advantage of the program no matter what, meaning they buy lots of houses.  This drives up the price of housing a lot. After a short time, housing prices rise so much that the responsible poor cannot afford housing anymore, so they stop buying houses. The irresponsible poor can’t afford it either but buy anyway. After a time, the irresponsible poor start to default on their loans, have their houses foreclosed, housing collapsed, yada yada yada, 2008 financial crisis.

A few things about this model. First, obviously there was a lot more going on in the 2008 financial crisis than this simple model. Second, it doesn’t say anything about whether the rich are more or less responsible than the poor; only that they have more money. There needs to be a certain percent of the poor who are irresponsible (or at least bad with money); I don’t know what that percent needs to be or what it was, but as long as there is a high enough percent of irresponsible people in your target group, a program like this is bound to fail.

Way back in the Bush years, there was a lot of discussion about the benefits of an “ownership society.” Basically, they saw that people who owned homes were much better off than those who didn’t. Obviously this screams correlation is not causation, but lets ignore that for a second. Let’s assume that home ownership really does magically make people more responsible. Does my model still work?

Yes. Even if, once a homeowner moves in, he moves from irresponsible poor to responsible poor, its already too late. He’s already made the decision and cannot easily back out.

Again, in our little model here, we basically hurt everyone, the rich have to pay more for houses, so they’re hurt a little bit; the responsible poor are probably effected the least, they couldn’t afford housing before and can’t afford it now, and the irresponsible poor now have debt and bankruptcy and foreclosure to think about. Also, the country is thrown into a recession; which is good for no-one. Its also pretty clear that the poor are hurt more than the rich are by this.

All of this is a really long winded way of saying that programs can backfire. Over my lifetime, the gap between the rich and the poor has widened. And I think that most or all of the programs we have designed to fix it do more harm than good.  I’m going to attempt to relaunch this blog while tackling this phenomena.