Driverless Cars and Uneasy Riders

I had forgotten we've been having this discussion for over three years.

Tyler Cowen has a piece in the New York Times on how regulation inhibits innovation in transportation using the example of driverless cars. I'm not sure he's made his general case (that's the subject for an upcoming post), but his specific case is particularly problematic.

In case you haven't been following this story, Google has been getting a lot of press for its experiments with self-driving cars, especially after statements like this from Stanford professor Sebastian Thrun:

"Think about the car as a medium of mass transit: So, what if our highway-train of the future meant you go on the highway, and there's a train of very close-driving cars with very low wind drag, fantastic capacity, is twice as efficient as possible as today, and so there is no congestion anymore?"

Cowen is clearly thinking along the same lines:

Furthermore, computer-driven cars could allow for tighter packing of vehicles on the road, which would speed traffic times and allow a given road or city to handle more cars. Trips to transport goods might dispense with drivers altogether, and rental cars could routinely pick up customers. And if you worry about the environmental consequences of packing our roads with cars, since we can’t do without them entirely, we still can make those we use as efficient — and as green — as possible.

Putting aside the question of the magnitude of these savings in time, road capacity and fuel effeiciency (which, given the level of technology we're talking about here, aren't that great), where exactly are these savings coming from?

Some can certainly be attributed to more optimal decision-making and near instantaneous reaction time, but that's not where the real pay-off is. To get the big savings, you need communication and cooperation. Your ideal driving strategy needs to take into account the destination, capabilities and strategies of all the vehicles around you. Every car on the road has got be talking with every other car on the road, all using the same language and rules of the road, to get anything near optimal results.

Throw just one vehicle that's not communicating (either because it has a human driver or because its communication system is down or is incompatible) into the mix and suddenly every other vehicle nearby will have to allow for unexpected acceleration and lane changes. Will driverless cars be able to deal with the challenge? Sure, but they will not be able to able to do it while achieving the results Thrun describes.

A large number of driverless cars might improve speed and congestion slightly, but getting to the packed, efficient roads that Cowen mentions would mean draconian regulations requiring highly specific attributes for all vehicles driving on a major freeway. The manufacture and modification of vehicles would have to be tightly controlled. Motorcycles would almost certainly have to be banned from major roads. Severe limits would have to be put on when a car or truck could be driven manually.

Based on the conversation that followed that post (check out the comment section), I should probably add that much of the benefit described by Thrun and Cowen could achieved by making special lanes and sections of road driverless-only. One the whole though, I stand by the point that much of what we've been promised (speed, fuel efficiency, road capacity) require an all driverless group of cars working together.

One point I made in passing could probably use more elaboration. Motorcycles are small, accident prone vehicles. They can accelerate very quickly, they often behave erratically, and they tend to function under a somewhat looser set of traffic laws. Their small size and low cost make them more difficult to regulate. And finally, as far as I can tell, there is no serious plan to introduce fully autonomous versions. If you want to get close to the level of performance Thrun promises, you do not want motorcycles on the road.

It's hard to see this not becoming a typical convenience-of-the-many argument for regulation. As autonomous vehicles become more common, it is pretty much inevitable that, while overall accidents and traffic jams will go down, those that still occur will be disproportionately caused by vehicles that don't lend themselves to autonomous control or those which routinely have to do things that are difficult to explain to a computer. The first group would include motorcycles and classic/antique cars. The second would include real pick-ups* or SUVs that actually leave the pavement. I would hate to see those vehicles forced off most major roads but that would seem to be the likely outcome.

* Those that do real work. Us country boys take this seriously.

Useful, fun and affordable -- one out of three ain't bad

I saw a fellow riding one of these near Pershing Square in downtown LA. It looked very cool.

Weighing 25 pounds (11 kg), sporting folding leg platforms on each side and a carry handle on top, the 17 x 19 x 5-inch (43 x 48 x 13 cm) Solowheel from Inventist is sure to turn some heads as you trundle along at up to 12mph. The durable external housing hides a Li-ion battery that's said to be good for two hours of use between charges and a 1000-Watt electric motor, and a self-balancing gyro system. Its battery is reported to take 45 minutes to charge but a regenerative system returns energy to the battery when the rider slows down or the unit goes downhill, which could help extend the range.

The electric unicycle's creators say that it's easy to use and quick to learn, the feet are quite close to the ground and the legs rest against each side of the housing which help with balance and steering. With both feet on the vehicle, you just lean forward to start going. When you want to slow down or stop, you lean back. You use the legs to steer, much as you would on the Magic Wheel.

Jinalyn Liljedahl from Inventist told Gizmag that he expects the Solowheel to be available from April at a cost of US$1495. Each unit will be shipped with an instructional DVD and charger.

I can see the Solowheel being a useful, fun and quite affordable way to trundle from the railway station into work and back again.

25 lbs is amazingly light for a vehicle but it will get heavy quickly when you're carrying around the train station, particularly if you're paying fifteen hundred for the privilege.

Another story that needs to be on our radar -- ECOT

I've been meaning to get the blog up to speed on Ohio, a state with a pro-privatization, anti-regulation philosophy, that seems determined to catch up with Florida and Michigan. I've also been meaning to write more on the various scandals associated with online charters.

Now Ohio blogger Plunderbund gives me a chance to a two-fer:

The Electronic Classroom of Tomorrow (ECOT) is the largest charter school in the state of Ohio.  The online school is easily the largest charter school in Ohio, is larger than the vast majority of Ohio’s traditional school districts, and received nearly $100 million in state taxpayer dollars last school year.

On the latest report cards released by the Ohio Department of Education, ECOT continues to rank below all of the 8 large urban schools that are often-criticized by legislators and in the media for their “sub-par” performance.

...

[Founder William] Lager is also the owner of two privately-held companies that provide both the management services (Altair Learning Management) and curriculum (IQ Innovations) to the online school.  According to audits released by the Ohio Auditor of State, here’s a summary of the funds that have gone from taxpayers through ECOT and directly to Lager’s companies:

...

Lager’s personally-owned private companies have now received over $130 million in tax dollars – money that has been taken directly away from other, higher-performing public schools and for which Lager does not have to account for publicly.

These astounding dollar figures explain help explain how Lager is able to donate an inconceivable amount of money to political campaigns.  We’ve dug even deeper into Lager’s campaign contributions and discovered that he not only donates under his own name to Republican campaigns in other states, he has also made donations directly from his two companies over the past decade totaling over $184,000.  Here’s an updated list of Lager’s political donations (under his name and from his two companies)since he entered the charter school business in 2000:

Over the last eight years, Lager’s average annual donation amount is $$199,826.85.  For some perspective, the Toledo Public School District recently hired a new superintendent to a five-year contract.  Toledo has better performance numbers than ECOT, serves nearly twice as many students, and the new superintendent will make an annual salary of $175,000 – $25,000 LESS than Lager donates on an annual basis!!!

Jon Chait at his absolute best

Jon Chait has an excellent article on small government.  One excellent excerpt:

Cutting down excessive licensing rules, not to mention other incarnations of Big Small Government, would require overruling the prerogatives of state and local governments—governments with absolutely no interest in reducing their power voluntarily. The paradoxical reality is that ending the most abusive practices of American government requires moving responsibility up the local-state-federal chain, which is the opposite of ingrained conservative impulses. And when national right-wing organizations do plunge into local politics, they generally attempt to replicate Washington-style conservatism. Rather than attack nefarious exercises of state power, they attack the most benign ones. A recent Center for American Progress report sums up incursions by the Koch network into state and local controversies: It is hard at work blocking tiny tax increases, preventing infrastructure maintenance, and shuttering zoos and community centers. Big Small Government is spared its ideological assault.

I think it is well know that Jon Chait and I are on the opposite side of the education reform debate.  But he is at his best when talking about the functions of government.  I think this issue is a lot of why I distrust education reform -- moving away from big government may well result in less accountability (e.g via small charters).

But having said that, it is an amazing piece where he correctly diagnoses how problems at the small government level are often left to fester.  A very important piece, and one I recommend reading. 

When your business model requires minimal competition

There is a point we've made in passing in a couple of threads: the telecom industry relies heavily on models and strategies that only work in markets with limited competition. These include high fees, opaque and complicated pricing schemes, bundling, bad customer service and explicit policies that makes closing accounts as inconvenient as possible.

There's a quote that Joseph and I tried to credit each other with for years before deciding it came from a business analyst we both knew: "sometimes, it's bad for a company not to be able to lose money." In a competitive market, idiots tend to be culled out. It's not a perfect process but it's a healthy one and it helps maintain the competence level of a business.

The corollary to that quote is "Eventually, all companies can lose money." There will come a point where a company will have to perform competently. I think we may be reaching that point with the telecoms and I don't know that they're up to it. Faced with an increasingly unstable business model, they have dug themselves into a brand and PR nightmare. Worse still, they have managed to hand major victories to the very competitors that threaten  that model. Over-the-air television has a much higher profile and is much more viable since TWC's disastrous showdown with CBS. TWC also managed to give a major boost to the municipal internet movement by so mishandling customers in places like Wilson, North Carolina.

From Dominic Rushe writing for the Guardian

USTelecom, which represents telecoms giants Verizon, AT&T and others, wants the FCC to block expansion of two popular municipally owned high-speed internet networks, one in Chattanooga, Tennessee, and the other in Wilson, North Carolina.

“The success of public broadband is a mixed record, with numerous examples of failures,” USTelecom said in a blogpost. “With state taxpayers on the financial hook when a municipal broadband network goes under, it is entirely reasonable for state legislatures to be cautious in limiting or even prohibiting that activity.”

Chattanooga has the largest high-speed internet service in the US, offering customers access to speeds of 1 gigabit per second – about 50 times faster than the US average. The service, provided by municipally owned EPB, has sparked a tech boom in the city and attracted international attention. EPB is now petitioning the FCC to expand its territory. Comcast and other companies have previously sued unsuccessfully to stop EPB’s fibre optic roll out.

Wilson, a town of a little more than 49,000 people, launched Greenlight, its own service offering high-speed internet, after complaints about the cost and quality of Time Warner cable’s service. Time Warner lobbied the North Carolina senate to outlaw the service and similar municipal efforts.

I know I go on about ignoring Canada's education system

But normally I'm talking about pro-reform journalists not covering the country or pro-reform pundits not addressing the counter-example to their proposals.

This is different. This study, which is getting a lot of play among reform advocates, seems to skip the country entirely and give no reason for the omission.

Am I missing something?

Selection effects on steroids

UPDATE: I just put out a collection of our early posts on education (Things I Saw at the Counter-Reformation).  The impact of attrition is one of the big running themes in the book.

______________________________________________

I'm about to have a lot more to say about the various ways high attrition can pump up a school's performance metrics, some directly through removing low performers, some indirectly through peer effects, treatment interactions and accounting tricks. At the risk of spoiling the punchline of those future posts, it is next to impossible to perform meaningful analyses of the academic quality of high-attrition schools. About the only safe conclusion is that those schools are worse than they look.

If charter schools are going to have a future (and I hope that they will, though my reasons will have to wait for another post), they will have to overcome two existential threats, both of which originated not with their critics but with their supporters. It was supporters who pushed a radical deregulation agenda that led to massive looting of the system and it was supporters who advocated for a flawed system where success was defined solely by metrics and those metrics were easily cooked by methods which took a brutal toll on kids.

In a devastating post, Diane Ravitch spells out just how bad the problem has gotten.

Reformers tend to make two very different arguments about charter schools. Argument #1 is that charter schools serve the same students as public schools and manage to put public schools to shame by producing amazingly better results on standardized exams. Therefore, reformers claim, if only public schools did what charter schools do (or better yet, if all public schools were closed and charter schools took over), student learning would dramatically increase and America might even beat South Korea or Finland on international standardized tests. When it is pointed out that, as a whole, charters do no better than public schools on standardized tests [2], reformers will quickly turn their attention to specific charter chains that, they claim, do indeed produce much better standardized test results. So what’s the deal with these chains? Well, in every case that has been subjected to scrutiny their results are extremely suspicious. Here is a short list of examples:

1. Achievement First in New Haven had a freshman class of 64 students (2 students enrolled later), and only 25 graduated- a 38% graduation rate- yet the school claimed a 100% graduation rate by ignoring the 62% attrition rate. [3]

2. Denver School of Science and Technology (DSST) had a freshman class of 144 students and only 89 12th graders- a 62% graduation rate- yet the school (and Arne Duncan) claimed a 100% graduation rate by ignoring the 38% attrition rate. [4] As a 6-12 charter chain, DSST also manages to attrite vast numbers of their middle school students before they even enter the high school.

3. Uncommon Schools in Newark disappears 38% of its general test takers from 6th to 8th grade.[5] Another analysis found that through high school the attrition rate was, alarmingly, much higher “Uncommon loses 62 to 69% of all males and up to 74% of Black males.”[6]

4. BASIS in Arizona- “At…BASIS charter school in Tucson, the class of 2012 had 97 students when they were 6th graders. By the time those students were seniors, their numbers had dwindled to 33, a drop of 66%. At BASIS Scottsdale…its class of 2012 fell from 53 in the 6th grade to 19 in its senior year, a drop of 64%.” [7]

5. The Noble Network in Chicago- “Every year, the graduating class of Noble Charter schools matriculates with around 30 percent fewer students than they started with in their freshman year.” [8]

6. Harmony Charters in Texas- “Strikingly, Harmony lost more than 40% of 6th grade students over a two-year time.” [9]

7. KIPP in San Francisco- “A 2008 study of the (then-existing) Bay Area KIPP schools by SRI International showed a 60% attrition rate…the students who left were overwhelmingly the lower achievers.” [10]

8. KIPP in Tennessee had 18% attrition in a single year! “In fact, the only schools that have net losses of 10 to 33 percent are charter schools.” [11]

In every case these charter chains accepted students that were significantly more advantaged than the typical student in the district, and then the charters attrited a significant chunk of those students.

Success Academy in New York City plays the same game. It accepts many fewer high needs special education students, English Language Learners, and poor students. [12] It attrites up to 1/3 of its students before they even get to testing grades and then loses students at an even faster pace. It selectively attrites those students most likely to get low scores on standardized tests. [13] It is legally permitted to mark its own exams (as are all New York City charter schools) while public schools cannot. It loses 74% of its teachers in a single year at some of its schools. [14] The author of the Daily News editorial that sparked the initial blog commented “even in the aggregate that wouldn’t seem to account for” the results. It is entirely unclear what he means by “in the aggregate.” But it is clear that he has his arithmetic wrong. A charter chain that starts with an entering class that is likely to score well on standardized tests, then selectively prunes 50% or more of the students who don’t score well on standardized tests and refuses to replace the disappeared students with others, can easily show good standardized test results with the remaining students. Any school could do this. It’s really not rocket science.

And here are the footnotes

[1] https://dianeravitch.net/2014/08/22/is-eva-moskowitz-the-lance-armstrong-of-education/
[2] http://www.washingtonpost.com/blogs/answer-sheet/wp/2013/09/24/the-bottom-line-on-charter-school-studies/
[3] http://jonathanpelto.com/2013/05/30/another-big-lie-from-achievement-first-100-percent-college-acceptance-rate/
[4] http://garyrubinstein.wordpress.com/2014/04/16/arne-debunkin/
[5] http://schoolfinance101.wordpress.com/2010/12/02/truly-uncommon-in-newark /
[6] http://danley.rutgers.edu/2014/08/11/guest-post-where-will-all-the-boys-go/
[7] http://blogforarizona.net/basis-charters-education-model-success-by-attrition/
[8] http://jerseyjazzman.blogspot.com/2012/04/no-bull-in-chicago.html
[9] http://fullerlook.wordpress.com/2012/08/23/tx_ms_charter_study/
[10] http://parentsacrossamerica.org/high-kipp-attrition-must-be-part-of-san-francisco-discussion/
[11] http://www.wsmv.com/story/22277105/charter-schools-losing-struggling-students-to-zoned-schools
[12] https://dianeravitch.net/2014/03/12/fact-checking-evas-claims-on-national-television/
[13] https://dianeravitch.net/2014/02/28/a-note-about-success-academys-data/. The high attrition rate before testing in 3rd grade may explain the data pattern noted in this http://shankerblog.org/?p=10346#more-10346 analysis.
[14] http://www.citylimits.org/news/articles/5156/why-charter-schools-have-high-teacher-turnover#.U_gqR__wtMv
[15] http://edexcellence.net/commentary/education-gadfly-daily/flypaper/2013/the-charter-expulsion-flap-who-speaks-for-the-strivers.html
[16] http://schoolfinance101.wordpress.com/2012/12/03/when-dummy-variables-arent-smart-enough-more-comments-on-the-nj-credo-study/

Support your local journalists

As part of a sharp and funny take down of Chris Christie and Rick Perry, Charles P. Pierce makes a point I've been meaning to hit for a while:

There are a couple of lessons to be drawn by looking at this continuing investigation into traffic-related ratfking and at the continuing investigation into the activities of Rick Perry down in Texas. The first, and most obvious one, is that, if you really want to understand these kind of scandals, it is imperative to ignore everything the elite national political press says about them, and get with the local media on the ground in the states. This means the Bergen Record on the bridge thing, and it means Jeff Cohen in Houston, as well as Wayne Slater and Keven Willis in Dallas, on Goodhair's shenanigans. What seems to have baffled Jonathan Chait and a number of other liberal outlanders seems pretty clear to the Dallas Morning News, which is rarely confused with In These Times.

There is a lot of good local journalism coming out of the local papers, and yes, TV stations of places like Dallas and New Orleans, particularly if you're a fan of the check the facts them shape the narrative to fit what actually happened school of reporting. I think you can even make the case that while the national outlets are getting worse, local is getting better, particularly in those areas where the standard narrative can no longer be reconciled with the facts on the ground.

Education reform is especially rich in stories where the national press is months or even years behnd their local competition.

Two more charter schools close abruptly, sending parents and students scrambling

Opting Out Of Testing Would Come At A Cost For Florida School Districts

And from Chicago

Drop CPS’ reform strategy: CPS neighborhood school growth outpaces charters

I know I pick on Netflix a lot

But the coverage of the company keeps providing such good examples of the way flacks and hacks force real stories into standard narratives.

Some of this can be fairly subtle. For example, using definitions that aren't standard but aren't quite wrong. For example, Check out this statement from Chief Financial Officer David Wells:

"Our intent is to continue to expand the content library," Wells told the investors in attendance. "If we're going to meaningfully address the 60 million to 90 million [potential U.S. subscribers], we'll need to do that by adding more originals, we need to do that by adding more breadth of content. And part of that is making our content more exclusive, so moving it from nonexclusive to exclusive, and offering more curated offerings" 

Check out the phrase "content library." The standard definition of the phrase is a collection of rights to artistic intellectual property. These days, a handful of very big entertainment companies* like AOL Time Warner or Disney own virtually every property created over the past century that could be shown on TV in either new or original form. If you have a retro-channel and you want to show I Dream of Jeannie, you have to get permission from (and send a check to) Sony. If you wanted to make a new Woody Woodpecker movie, you'd have to deal with NBC Universal.

Under the standard definition, Netflix simply does not have a content library.

HBO owns and produces about 95% of the original programming carried on its channels. Netflix has said it doesn’t want to adopt the studio model, preferring to be a licensee of content. The studio model lets HBO recoup the investment in original programming through its 114 million subscribers in 65 countries worldwide, as well as via DVD sales. For example, HBO earns $2.6 million in license fees for a single episode of “Game of Thrones” in international territories, according to HBO.

By contrast, Netflix calls itself a “programmer” not a producer. It licensed streaming rights to “House of Cards” from producer Media Rights Capital. MRC, which owns the content, cut a deal with Sony Pictures Television to sell DVD and international TV rights covering non-Netflix countries.

To put things in perspective, Sex in the City and its sequels probably brought in more than a billion dollars in revenue after the show ended. As far as I can tell, Netflix has no post-run rights of any kind for House of Cards or Orange is the New Black.

When Wells says "content library," he  means "shows that are currently being licensed."  That's one of those statements doesn't tend to strike the knowledgeable as a lie but which is highly misleading to many if not most of the journalists covering the story.

Netflix has done a masterful job framing its own narrative. Most of the press has embraced and internalized

Netflix = HBO 2.0

HBO is known for its content library. When a Netflix executive says "Our intent is to continue to expand the content library," it is remarkably easy for those journalists to miss the fact that 'content library' means something completely different in those two sentences.

* The exception being Dreamworks which is only worth around a couple billion, but that studio occupies a strange spot in the ecosystem.

Job security

Mark posted about a piece by Barry Ritholtz that had some smart things to say about market timing.  However, I think I want to quibble with the end of his piece:

One last thought on this: The demographic group with the longest investing time horizon are the millennials now in their 20s. According to Patrick O’Shaughnessy, author of “Millennial Money: How Young Investors Can Build a Fortune,” despite their long timeline, members of that generation seems to be missing out. They are significantly underinvested relative to how much time they have until retirement.

Given the dramatic financial crisis of 2007-2009, O’Shaughnessy says it is no surprise that millennials as a group “don’t trust Wall Street.” They also rank “all four major banks among most hated brands.”

“The most basic (and important) decision you make as an investor is your allocation between major asset classes — primarily stocks, bonds and cash.” O’Shaughnessy observes that this cohort is wildly underweighted in equities at 28 percent and overweighted in cash at an astounding 52 percent.

Perhaps it is ironic: The group that has the longest potential runway for absorbing market volatility also seems to be the least interested in investing in stocks.

When it’s time to retire, these folks might be surprised that they cannot go back to live in their parents’ basements again.

So I have a couple of basic questions to ask here.  One, people who are honestly at risk of moving back into their parent's basement should have cash investments.  Nothing is worse than having an unexpected cash crisis (car towed, water leak) where you need money fast to prevent a greater disaster.  Isn't this just prudent?

Second, the leading edge of this group is 35 years old.  So they have to presume that the stock market will do well for another 30 years or so, if retirement is the goal.  That might not be a bad gamble, but we are in the era where the baby boomers may switch from net buyers of stock to net sellers.  That could be a long period of sub-optimal returns. 

But really, the first piece is the most important.  We have moved into a era of decreasing employment security: "at will" employment, attacks on tenure, reduction in unions, and so forth.  In aggregate, these factors make it impossible to plan over long time horizons.  And the lesson of 2007 is that major employment dislocations are often paired with stocks plummeting.  Why wouldn't you keep a lot of money in cash?  After all, ending up as a homeless person because you tried to invest for yield seems like a bad outcome. 

I am not sure that I have a solution, except to note that we are in precisely the sort of employment market where a 401(k) or IRA is least likely to make sense.  After all, they are an asset that can be claimed to handle an unexpected disaster. 

So I am not sure that I would make the snarky last comment.  People growing up in economically depressed periods often have a very different view of the world than those who have always had resources. 

The essential distinction between charter schools and charter school chains

Noah Pransky of TV station WTSP adds to the excellent coverage of Florida's charter school corruption scandal. The piece is well worth checking out. It is also a good place to emphasize a point I've made in passing before. The charter school sector is highly diverse. It ranges from literal mom and pop operations to nation-wide corporations. The best of these schools get good results, genuinely care about their students and can fill an important educational niche. The worst aggressively cook data to conceal mediocre results and gouge the taxpayers.

If current trends hold, I think charter schools will be nearly as diverse and I'm not optimistic about who the winners will be.

Charter Schools USA (CUSA) has been operating charter schools in Florida for 20 years, including recently-opened schools in Hillsborough County: Woodmont Charter, Winthrop Charter, and Henderson Hammock Charter. Although charter schools sometimes struggle financially at first, CUSA eventually collects a 5% management fee from each to provide administration and guidance.

But 10 Investigates found a much bigger pot of money CUSA has been able to tap into: rent. When the company helps open a new school, its development arm, Red Apple Development, acquires land and constructs a school. Then, CUSA charges the school high rent.

For example, Winthrop Charter in Riverview may struggle to balance its budget this year thanks to a $2 million rent payment to CUSA/Red Apple Development. The payment will equate to approximately 23% of its budget, even though CUSA CEO Jon Hage has been quoted as saying charter school rent should not exceed 20%.

...

Jurado adds that many new charter schools ultimately fail because they lack the stability or resources that Charter Schools USA provides. The company operates 70 schools in seven states.

But among CUSA's critics is the League of Women Voters, which recently released a study suggesting a troubling lack of separation between a charter school's advisory board and for-profit management companies. It also indicates charter school teachers aren't often paid as well and profits all-too-often play a role in educational decisions.

"That means that children aren't getting what they're owed by the public funding," said Pat Hall, a retired Jefferson High department head and Hillsborough County's education chair for the League of Women Voters.

The study also revealed school choice creates a higher risk of disruption to a child's education, as "statewide closure rate of charters is 20%" and "Charters are 50% of all F-rated schools in 2011." In the last week, last-minute problems displaced a hundreds of charter school students from St. Petersburg to Delray Beach.

Hall acknowledges many charter schools are teaching children in unique and successful ways, but says Charter Schools USA isn't offering students anything that's not available in public schools. She adds that the schools are so focused on FCAT fundamentals, they forego many traditional aspects of the school experience.

While many CUSA schools may not have amenities such as a library or cafeteria, a company spokesperson said moving those amenities to the classroom can improve a student's learning atmosphere.

...

SPENDING (POLITICAL) MONEY TO MAKE MONEY

Charter Schools USA, its executives, and its subsidiaries have also spent millions of dollars to influence how laws are written in Florida.

State records reveal CUSA has donated $468,850 to candidates and committees at the state level since 2010. Most went to the Republican Party of Florida and other candidates/committees who support school choice.

CUSA CEO Jonathan Hage donated $50,000 to Gov. Rick Scott's "Let's Get to Work" committee in 2013, as well as thousands of dollars to other Republican candidates and committees. That includes four donations to various Charlie Crist campaigns between 2000 and 2006.

Other executives, Red Apple Development, and affiliated board members have thousands more.

State records indicate CUSA has also increased its lobbying expenditures every year since 2010, nearing $2 million in Tallahassee lobbying alone.

Executive lobbying expenditures, by year (only ranges provided):

2010 – Between 60,009 and 189,987
2011 – Between 100,007 and 209,989
2012 – Between 120,004 and 219,990
2013 – Between 230,004 and 379,985
2014 (first quarter) - Between 80,000 and 109,997
TOTALS: Between 590,000 and $1.1 million
Legislative lobbying expenditures, by year (state estimates):

2010 – $165,000
2011 – $265,000
2012 – $270,000
2013 – $320,000
2014 (first quarter) - $95,000
TOTALS: Between 590,000 and $1.1 million
The League of Women Voters also identified numerous legislators with connections to Charter Schools (Read Page 13), but none associated with Charter Schools USA, although state Rep. Jamie Grant, R-Tampa, sits on the volunteer Bay Area Charter Foundation board.

Asked about spending money on politics instead of in the classroom, Jurado pointed to the hordes of happy parents and thousands on CUSA waiting lists in Hillsborough County.

"I don't think the parents are going to look at this as, 'that's too much money to spend,' when they see the results from the child," Jurado said.

Context is important.

As you probably know, the Detroit Free Press recently ran a multipart expose on corruption in Michigan's charter schools. (You can find my summary of the series in this Monkey Cage post). The reporting can stand by itself but you get a deeper appreciation if you consider how these revelations look to the people there. To do so, it helps to look at the other government and education stories that are currently in the news in Michigan.

From The Detroit News:

State education officials have approved a plan by Detroit Public Schools to slash pay 10 percent districtwide to help erase the district’s $127 million deficit.

...

The pay cut, which will impact all teachers and administrators starting Oct. 1, came after the district was forced to make budget cuts to offset expected revenue from a failed countywide tax millage. The wage concession for teachers would generate $13.3 million in savings. Districtwide, the savings will be $21.1 million.

...

Parents, educators and community stakeholders met Wednesday morning in front of Ludington Middle School to denounce the cuts, as well as the district’s previously announced plans to increase class sizes.

Brian Kindle has two children beginning Head Start in the fall, and a 15-year-old at Cody High School. He said he’s worried about how pay cuts will impact his kids.

“I say hands off first responders, kids and teachers,” he said. “I’m here to support parents and their children, and to ask Gov. Snyder not to vote for the proposal.”

Kindle said he fears additional cuts will result in further neglect of students in the classroom.

“We should have classrooms on every corner, instead of liquor stores,” he said. “That would be great, but we don’t have a society that encourages it. But I will remain on the forefront supporting our children.”

...

“This is going to affect my whole financial situation, and it’s going to have a huge impact on my family,” she said. “It’s also going to impact the way we teach, because all teachers go into their own pockets to spend for classroom supplies, and now that can’t happen.”

Cherri Calhoun, a secretary at Ludington, said if she did not have her mom living with her, she’d be homeless.

“As it is now, I’m already struggling to pay my mortgage and my mom helps me pay my bills,” she said. “I’m pretty sure I’m going to have to find a part-time job now.”

Calhoun said to make matters worse, she is in a financial bind from the recent flooding in Metro Detroit.

“I just bought a new furnace and the water heater was relatively new and I’m going to have to replace the water heater,” she said. “This is horrible. I’ve got all these bills and I can’t afford to do anything.”

Netflix and the big swinging check syndrome

Another post in what what was supposed be a fairly brief Netflix thread. I want to move on to other topics, but this latest news item was just too good an example of certain bad trends in journalism to pass up.

You may have seen the following news story earlier:

Netflix Acquires ‘The Blacklist’ For $2 Million An Episode

EXCLUSIVE: In what is believed to be the biggest subscription video-on-demand deal for a TV series, I’ve learned that Netflix has acquired the rights to hit NBC drama The Blacklist from Sony Pictures TV in a deal that will net $2 million per episode. I hear Season 1 of the series starring James Spader will debut on the streaming service next weekend. As for future seasons, Netflix usually makes them available shortly after the season finales.

Sony TV first tested the off-network market waters for The Blacklist in March. While other streaming services, like Amazon and Hulu, do joint syndication deals with cable networks, Netflix, which largely pioneered the series SVOD business, insists on getting first dibs. Twentieth Television just recently sold New Girl to TBS and MTV, more than an year after prior seasons of the Fox series landed at Netflix in a rich deal, said to be worth $900,000 an episode. Like was the case with New Girl, I hear Sony TV has the right to also sell The Blacklist in cable and broadcast syndication, with Netflix getting an exclusive first window. The $2 million per-episode fee is said to be the biggest for an off-network series paid by Netflix (or any others streaming company), eclipsing previous record holder, AMC’s The Walking Dead, whose sale price to Netflix is believed to be $1.35 million per episode.

For starters, you will notice that the headline is somewhat misleading. Netflix did not "acquire" the Black List in the sense that, say ABC would have. The show will still be running on NBC next year. Nor did it acquire the rights to stream the episodes during the regular season; those will presumably stay with Hulu. What Netflix did acquire was the right to stream the previous year's episodes.

Furthermore, if you hit a few relevant Wikipedia pages and do some quick back-of-the-envelope calculations, you will see it is difficult to see how Netflix can justify this price-per-episode to its shareholders or how Sony could have negotiated it.

It is the nature of television, whether broadcast or streamed, that while the quality has a way of tapering off after a few years, the commercial value tends to increased sharply once a show has established itself. As a rule of thumb, it is not until programs approach 100 episodes that you start talking real money.

Just to put things in perspective, while a long running, syndication friendly, proven hit like NCIS can bring in over $2 million a year. That is very much an upper bound. The Blacklist is years away from having a viable syndication package. Even when it gets there, its serialized elements will probably keep it from making the really big bucks. A forty-four million dollar deal one year into a series run is extraordinary. It is almost inconceivable that Sony would not have settled for much less.

I realize that the following point should be too obvious to bother with, but the object of business is to bring in as much money as possible while sending out as little as possible. If Netflix just paid $44 million for something which they could've gotten for 20 or even 10, this would indicate a fundamental lack of confidence by the management of the company.

Here though, we get into one of the great paradoxes of modern business journalism. From a strictly logical standpoint, the best run businesses are, almost by definition, those which do the most with the least. From an emotional standpoint, journalists are most impressed by those executives who spend extravagantly without apparent hesitation.

For lack of a better word, the willingness to sign large checks is seen as a sign of virility. The bigger the check, the more positive the impression it makes on the reporters covering the story. The soundness of the purchase does not matter, nor does its positive or negative impact on the executive's company.

Netflix has long been something of a joke within the entertainment industry for its tendency to pay more than top dollar for properties that have already been turned down by everybody else and yet Reed Hastings' reputation as a visionary business genius simply grows stronger.

Along similar lines, when Mark Zuckerberg paid an exorbitant amount of money for a company the New York Times simply gushed with enthusiasm, even though it was later revealed that the primary selling point of the company was the fact that the founder threw awesome parties.

Hastings and Zuckerberg may stand out but that doesn't mean they aren't representative. Executives, particularly tech executives, are routinely lauded for big, bold deals, even when those deals make no sense from a traditional business standpoint. Like so much business coverage we see these days, what is presented as rational analysis is a series emotional reactions to charismatic personalities, catchy narratives and the reflected glow of great wealth.

Netflix and the ethics of modern journalism

I had meant to drop this topic after the recent Emmys post, but one more issue got stuck between my teeth and I think it would be easier to write it away then to try to ignore it.



I recently heard an interview on public radio that bothered me quite a bit but before I get into the specifics I should probably lay some groundwork about the Netflix business model.

When Netflix first started as a DVD-by-mail service, perhaps its greatest selling point was selection. It couldn't offer every movie and TV show that had ever been released on DVD, but it could come surprisingly close. By contrast, selection was probably the worst thing about the streaming service. If you randomly pick a movie or TV show that you would like to see, the chances of finding it on Netflix are vanishingly small. (To get an idea just how limited, try comparing the classic movie section in Netflix with the Criterion Collection on Hulu).

Of course, retailers have been dealing with the problem of making small selections look big for decades, perhaps even centuries. Some stores get around this by putting mirrors on the wall. Others arrange their stock so that a few items will take a great deal of space and seem to fill the showroom. And of course, the tricks used by advertisers to achieve this effect are endless.

Netflix has come up with a number of online alternatives to the mirrors on the wall. They have found excuses for double, triple, and quadruple listing various titles. They have split single series into multiple listings. They leave titles in the new arrival category for a very long time. For a while , they were even offering the same public domain episodes of shows like Bonanza which you can find and download for free at the Internet Archive (the tip off is the title music).




Just to be clear, there is absolutely nothing wrong with a company doing this. If I were running Netflix, I'd be pursuing the same strategy (actually, I'd hire Neal Sabin and tell him to do it but that's another story). You always present the product in the best possible way then you present the presentation in the best possible way. When your merchandise is ugly, you dim the lights; when people ask why the lights are dim, you say it's artistic.

Where I do see a potential ethical problem is in the way journalists present these presentations, particularly when the journalists have a symbiotic relationship with the companies they cover.

The other day, I heard CBC's Jian Ghomeshi interviewing Atlantic writer/editor Alexis Madrigal and Netflix executive Todd Yellin. I in part way through and only heard some of the segment and I would have listened to even less if I hadn't been waiting to find out who was talking (I tuned in in the middle). The two of them were very much working as a team to the extent that, if not for the occasional pronoun ('our' vs. 'their, for example), I would not have been able to tell who was the journalist and who was the company spokesman.

Perhaps it got better, but what I heard was simply an uncritical recitation of the official company spin with the journalist stepping into the role of second company representative. This is doubly troubling because Madrigal appears to have benefited greatly from this partnership. Reporting on big companies is remarkably easy if you're telling the story the executives want people to hear (obviously the case here), so Madrigal appears to have gotten a major feature with minimum effort. What's more, he is milking this piece for all it's worth, getting interviews and being featured in other stories and building his media profile in general. He may even get a book out of this.

I realize there have always been symbiotic relationships between journalists and subjects, just as companies have always tried to shape their narratives, but if nothing else, I think it used to bother us more.

Barry Ritholtz on Market Timing, Wolf Richter on rigging the IPO market

I don't have the time to do anything more than pass these along (and Joseph has even less), but these are worth your time.

First, Barry Ritholtz  looks at the upper and lower bounds for returns on market timing strategies and comes up with some interesting conclusions.

Second, Wolf Richter shows how a carefully placed (and even more carefully leaked) investment of $20 million has caused the valuation of a company with no revenue and virtually no business plan to go from an unjustifiable $2 billion to a surreal $10 billion (and, more importantly, caused a ripple effect through the entire IPO market).