Ms Goldstein on Tenure

I think that Dana Goldstein has a really good view on tenure:

Indeed, the Green Dot model calls for teams of teachers to be actively involved in hiring their peers; this is a highly-vetted workforce operating in an environment that emphasizes collegiality and professionalism. Without such healthy school envirnments, unions and teachers will have a hard time giving up the tenure protections they've won because of a very real history of adminstrative overreach.

I see this issue as being very similar to online education. My department has a very strong online graduate program. Contrary to all predictions, moving education to an online environment takes a lot of work and isn't as effective at improving productivity as one might imagine. It's possible to do a high quality online program, but it sure isn't inexpensive or easy.

In the same sense, the idea of removing tenure and leaving effective (albeit different) schools has a lot of the same properties. By increasing teacher empowerment, involving teachers in decisions, and increasing compensation you can develop a workable model. After all, tenure is a job perk and it can be replaced by other job perks like employee autonomy and empowerment.

But what the removal of tenure isn't is a cheap way to reduce teacher salaries while holding quality constant. I am agnostic as to the existence of tenure in a workplace. It is a nice perk but it brings downsides as well. What I find more alarming is the effort to remove tenure and replace it with . . . nothing. Or, even worse, replacing nuanced teacher review with test scores (and then removing tenure).

I admit to being very sympathetic to empowered workplaces. My natural work environment is likely the Left Coast and reading about the corporate culture of Silicon Valley convinced me that I'd do better there than in Boston. But these environments are not a cheap and easy substitution for conventional models. They are hard to develop and really require that the employees be either mobile or empowered.

Is that a goal reformers really want to work towards?

"Don't like my tax plan? Dial 1-800-EAT-USED-FOOD"

It was an unfortunate juxtaposition but one the Cain campaign really should have seen coming. In case you haven't heard, Herman Cain's tax plan includes a sales tax on everything but used goods. During a report I heard today, an economist pointed out how regressive the plan was, in part, he said, because poor people spend a disproportionate part of their income on food (which is taxed under the plan). The report then had Cain challenging the complaints about his plan hitting the poor the hardest by saying they could change their behavior and buy more used things.

Insert Godfather's Pizza joke here.

Some more thoughts on MeTV

This time posted at MippyvilleTV and focused on the venerable Svengoolie.

Unemployment

Mark Thoma is strident:

The use of the term "slackers" is telling. You see, there's plenty of work for the industrious, our unemployment problem is due to laziness. There are plenty of jobs -- pay no attention to the fact that the number of unemployed is far, far greater than the number of jobs -- people don't really want to work. It has nothing to do with the crash of Wall Street destroying the economy, and the bounce back and present good fortune on Wall Street has nothing to do with the government bailing them out -- it was their hard work that fixed the problems.

I think that it is worth keeping in mind how dynamic the world is. There was a time, during the Clinton administration, where the willingness to work was enough to ensure employment in much of America. But the current unemployment rate suggests that many people who would like to work can't.

I really don't understand the disconnect here. Large enterprises need to be helped out by the government? Isn't that industrial policy?

From a health care point of view, unemployment is associated with all sorts of medical ills in the United States. Medical services are so expensive that unemployed people may neglect basic preventative care and end up in the (much more expensive) emergency room. Plus, it is likely that unemployment itself (a source of chronic stress and deprivation) may also have negative health impacts.

I really wonder when we will face up to this as a joint problem!

More banking thoughts

Reading Mark's last post brought to mind this New York Times article on how sticky bank accounts have become:

What they haven’t mentioned are marketing studies like the one commissioned by Fiserv, which develops online bill paying systems, showing that using the Internet to pay bills, do automatic deductions and send electronic checks reduced customer turnover for banks by up to 95 percent in some cases.

With 44 million households having used the Internet to pay a bill in the past 30 days — up from 32 million five years ago and projected to reach 55 million by 2016 — it’s a shift that has major ramifications for competition.

There’s even evidence that fewer consumers are switching banks, with 7 percent of them estimated to be moving their primary account to a different institution in 2011, down from 12 percent last year, according to surveys by Javelin Strategy and Research.

Emmett Higdon, a consultant who managed Citibank’s online bill payment product from 2004 to 2007, said that “for the consumer, it’s a double-edged sword.” While customers value the convenience, inside the industry “it was known that it would be a powerful retention tool. That’s why online bill paying went free in the first place. Inertia is powerful in the banking industry.”

Ironically, I actually see that these services are a point in favor of the banking industry. If these services are entered into voluntarily and make banking much more pleasant (which I can definitely confirm) then it is not a surprise that it is hard to move banks. Heck, I think it might have been harder back in the old days when you had to show up at a teller during banking hours.

Instead, we are seeing the banks seek out the point at which cost and convenience meet. Honestly, given the costs of handling cash, I think that they are nuts not to try and encourage electronic payments. After all, one option that Bank of America customers have is to start using cash for purchases and stop using debit cards.

My major barrier to the use of cash is the silly idea that we have to add sales tax to the posted price, making it impossible to calculate the amount due at the register (as the sales tax may vary by product, especially in a grocery store). If posted prices were the actual amount spent, I would be the master of exact change!

Bad banks and (you guessed it) free TV

I was listening to NPR a few days ago and I heard a financial reporter say that other banks would probably follow BoA's lead and start charging a fee for debit cards because "that's how markets work." That is, in fact, pretty much the exact opposite of how markets are supposed to work.

Even with the new regulation, merchants' fees are still many times what the transactions cost the banks. When markets are doing their job, businesses shouldn't be able to use a competitor's price increase as cover to raise their own. Competition is supposed to prevent this kind of de facto price fixing. In a well-functioning market, BoA's move should provide an ideal opportunity for a smaller bank to come in and grab a bigger slice of what is still a multibillion dollar market.

Of course, we don't have anything like a well-functioning market in banking. The considerable inconvenience of changing banks (particularly in an age of direct deposit) means that price increases and cuts in service will only cause minimal loss in market share. Poor transparency means that even if you get fed up enough to change banks, you probably won't be able to get the information you need to make an informed choice (at least not in a form that even a financial advisor can understand). Finally, and most importantly, the market is dominated by a handful of huge players, implicitly backed by the federal government thanks to their too-big-to-fail status.

Which brings me to my main point, and yes, the connection to free TV. We seem, as a society, to have become indifferent, if not openly hostile, to the idea of competition. I'm not talking about intrusive government anti-trust policies (those we can debate at another time); I'm talking about intrusive government policies that actively discourage competition. Implicitly guaranteeing the biggest banks, mangling patent and copyright laws to favor major established players, and, in the case of over-the-air television, proposing to shut down the only part of the television industry that's diversified and not dominated by large corporations (you could look at this as roughly analogous to proposing that we shut down credit unions).

The go-to guy on this story is, of course, Joe Nocera, but both Salmon and Baseline Scenario are also doing some great work here.

Financial security and the decision to start a family

I mentioned earlier that there was reason to suspect that being financially secure might influence the decision to adopt. This interview with demographer Carl Haub explores the similar relationship between economic downturns and birthrate (via the good people at NPR).

Best economic metric based on a Seinfeld routine

The joke about men keeping underwear until it broke down into individual underwear molecules came to mind while I was listening to an entertaining piece on alternative economic indicators (via the good people at Marketplce). The list included Marine retention and abandoned pets and, of course, this:

Ryssdal: I'm just looking at the list of things we were going to talk about and I see next -- and I hesitate to mention this -- the men's underwear index.

Brancaccio: The theory is during bad times we're less likely to replace our boxers and our briefs. I wouldn't have brought the tone of this conversation down this far if the source had not been so exalted.

Ryssdal: Give it up. Who is it?

Brancaccio: Well, back in the '70s before he was Fed Chairman, Alan Greenspan ran his consulting firm. One way he kept track of the economy was by looking at offbeat economic indicators like the men's underwear indicator -- MUI for those of you in the know. Here's the theory: When you're feeling strapped for cash, your less likely to replace your undergarments even though most people see under see underwear as a necessity not a luxury.

Ryssdal: So one is obliged to ask David, how are sales now?

Brancaccio: Well, we did check. And according to an analyst who tracks these things -- underwear sales for the NPD Group -- sales, currently, are up 5.2 percent.

Testing Theory

Matt Yglesias:

Last week I was outside my office and I saw a $5 bill on the ground. Famously, economists say you never see a $5 bill on the ground because someone would pick it up. But instead of picking it up, I stood around watching to see if anyone else would. A bunch of people walked by not noticing it. Then one guy saw it, saw me, and asked if it was mine. I said no it wasn’t, I was just curious what would happen. He laughed and made a joke about economists. Then a second guy came by, picked it up, and said I’d dropped five dollars. I said no, actually it was there before me. He looked around, noticed a homeless guy across the street, said “I think he needs it more than me,” walked over and gave it to him.

While a single test is not proof of anything (expect the strongest of the possible theories), I have certainly had people tell me that I have dropped money. That seems to go against the assumption that rational people will always act to increase their wealth (after all, they could just pick up the bill).

I think that it is worth keeping in mind that the assumptions of economic models are just that. Models can be useful but are rarely ever completely correct.

And Matt's stuff in the same post on the Night Watchman state is simply not to be missed.

Update on BoA severance

In a recent post, I referenced the decision of Bank of America to give a very large settlement package to two departing executives. Given how tone deaf the settlement seemed, many people assumed that it was part of an employment contract. Mark, my co-blogger, has many times talked about the importance of upholding contracts (see comments on this post).

It turns out that the decision to pay $11 million dollars in severance was voluntary and not required at all by any contract.

Social Justice

Tyler Cowen points out a great interview with the head of a major Slovakian political party on why Slovakia isn't necessarily thrilled about the plans in Europe:

SPIEGEL ONLINE: Nevertheless, banks could run into significant problems should they be forced to write down billions in sovereign bond holdings.

Sulik: So what? They took on too much risk. That one might go broke as a consequence of bad decisions is just part of the market economy. Of course, states have to protect the savings of their populations. But that's much cheaper than bailing banks out. And that, in turn, is much cheaper than bailing entire states out.

SPIEGEL ONLINE: Does one of your reasons for not wanting to help Greece have to do with the fact that Slovakia itself is one of the poorest countries in the EU?

Sulík: A few years back, we survived an economic crisis. With great effort and tough reforms, we put it behind us. Today, Slovakia has the lowest average salaries in the euro zone. How am I supposed to explain to people that they are going to have to pay a higher value-added tax (VAT) so that Greeks can get pensions three times as high as the ones in Slovakia

I think that this is becoming one of the real flashpoints in our economic discourse. I am a huge supporter of pensions. But I can see the potential moral hazard in the Eurozone where making reckless promises can result in being bailed out (and working through your problems can result in being billed for others failure to do so). That sort of "tragedy of the commons" is a much bigger threat to economic stability than I had previously suspected.

We will have some of the same issues between generation here in the United States. There have been proposals to limit Medicare to people who are currently 55 plus. That will mean my generation (which began their careers with a terrible job market) will be playing taxes so that the generation ahead of it (which did comparatively well) can retire at a higher standard of living. These sorts of approaches can be toxic to any social contract.

But I can see Slovakia's position now, even if I am not necessarily in favor of it.

Epidemiology is about communication

This article highlights the critical importance of continuing to try and communicate evidence-based medical information:

Most pancreatic cancers are aggressive and always terminal, but Steve was lucky (if you can call it that) and had a rare form called an islet cell neuroendocrine tumor, which is actually quite treatable with excellent survival rates — if caught soon enough. The median survival is about a decade, but it depends on how soon it’s removed surgically. Steve caught his very early, and should have expected to survive much longer than a decade. Unfortunately Steve relied on a diet instead of early surgery. There is no evidence that diet has any effect on islet cell carcinoma. As he dieted for nine months, the tumor progressed, and took him from the high end to the low end of the survival rate.

Why did he do this? Well, outsiders like us can’t know; but many who avoid medical treatment in favor of unproven alternatives do so because they’ve been given bad information, without the tools or expertise to discriminate good from bad.

Everyone would prefer to avoid surgery -- especially painful, high-risk surgery with an uncertain prognosis. But this seems to be a clear case where better advice could have made a real difference. Unfortunately, the literature is full of spurious findings and it can be hard for even experts to sort these issues out.

The ultimate goal of Epidemiology is to give patients the best (high-quality) evidence available in order to assist them in making optimal decisions. We'll never know if the advice given to Steve Jobs was good or bad, but stories like this highlight how important it is to keep focusing on communication.

Testing teachers

It has been a while since we talked about education reform but Arnold Kling has a great perspective:

Simple formulas can be “gamed.” That is, employees learn to achieve the objectives in the formula while failing to work toward the longer-term goals of the firm. On Wall Street, we have seen how bonus formulas proved dysfunctional. The older partnership form of organization appears to have provided better incentives.

A government-run system of teacher compensation, based on test scores, would in some ways be the worst of all worlds. It would create incentives for teachers to “game” the system. It would give too much weight to a noisy indicator of performance. As a result, it would do little or nothing to improve accountability or to reward better teachers.

This classic insight is shown in this dilbert comic.

Are we sure that test score based measures are the way to go? Most information technology jobs have the same sort of issues, often solved by comparative rankings and broad evaluations. Even worse, a bad metric drives out the good (meaning it could actually be counter-productive).

The whole post is worth reading.

More on Executive Compensation

I do not agree with the amount of vitriol in the linked post, but Joshua Brown has a very strong set of feeling on the decision to pay two low level executives at Bank of America an $11 million dollar severance package:

You pay fired executives more in severance than the average American worker will earn in a lifetime. For most people on the outside looking in, this seems like it's from outer space, another world entirely. These numbers just do not exist to regular human beings, they cannot be fathomed.

He also points out the bad timing:

It's not that this isn't your prerogative as a private company - it is. But seriously, numbers like these at a time when you're instituting added fees on customer accounts just sound farcical, almost like you're making these payments to get a reaction out people.

I have been interested in this dynamic for a while. Mostly because I am beginning to see executive compensation as an intriguing form of market failure. After all, let us consider the example of these two executives. What are they being compensated for?

Do executives at banks really add so much value that $5.5 million dollar severance packages are just a way of saying thank you? Is there really no competitive pressure on salaries? Is the supply of potential bankers really this low? Supply side issues seem to be dubious. Are these skills really so rare (and, if they are, how do banks really select for them because the rest of us want to know).

Or is it due to the risk of taking a corporate job instead of being a school teacher? Well, these two executives are not really taking any real risk. Even if this is the last job either one ever holds. they are already well above the typical lifetime earnings curve based on this severance package alone. Debts required to reach this position (like School debt) are simply dwarfed by the size of the payout.

It is a very interesting problem.

Schlock Mercenary

It is certainly one of the best science fiction themed web comics out there. It is a new addition to the blogroll.

Enjoy!