A couple of interesting stories on the business of gambling

American Public Media's Marketplace has a report on one of those you've-got-to-be-kidding business models. Not sleazy (the people behind it actually go out of their way not to take advantage of customers who might develop a serious problem), but this online casino is another example of people willingly paying money for something they can get for free.

By comparison, the AP has this account of a casino model that players have remarkably little interest in. Given the emergence of casinos in nearby states and the stagnant economy, the decline in Atlantic City isn't exactly unexpected, but this piece is still worth checking out and the title "Monopoly lost: Atlantic City's rise and fall" is definitely good for some bonus points.

A "how to lie with statistics" instant classic from the Wall Street Journal op-ed page

CJR's Ryan Chittum catches Stephen Moore doing his damnedest to mislead:

The question-as-headline is your second red flag that this just might be a deeply disingenuous op-ed (the first is that it’s on The Wall Street Journal op-ed page):

A 62% Top Tax Rate?

The top marginal tax rate is just 35 percent now, of course. So how does Moore come up with the idea that Obama and the Democrats are pitching a 62 percent tax rate for the rich? Disingenuously.

First, here’s a classic example of misleading readers with an apples and oranges comparison:

If the Democrats’ millionaire surtax were to happen—and were added to other tax increases already enacted last year and other leading tax hike ideas on the table this year—this could leave the U.S. with a combined federal and state top tax rate on earnings of 62%. That’s more than double the highest federal marginal rate of 28% when President Reagan left office in 1989. Welcome back to the 1970s.

For Moore’s headline purposes he includes state taxes to get to 62 percent, but when he compare it to rates under Reagan, he doesn’t include state taxes.

The comparison is much more misleading than that, really. Moore is also including things like payroll taxes to come up with his fake 62 percent number, while not including them in that 28 percent Reagan figure. You can’t do that, boss.

Moreover, to come up with that doozy of a number, Moore is adding in not only state and payroll taxes, but just about every possible tax hike being bandied about by Democrats. But Moore knows full well that even if they wanted to, which they don’t, the Dems wouldn’t be able to enact every one of these. But he acts like they’re all coming.

Those theoretical and far-from-likely tax hikes include a 3 percent surtax on incomes over a million bucks; Obama’s proposal to end the Bush tax cuts for the rich in 2013, which would return marginal rates to 39.5 percent at the top; 3.4 percent Medicare taxes (Moore includes the employer’s contribution here); and 10.1 percent in additional payroll taxes because “Several weeks ago, Mr. Obama raised the possibility of eliminating the income ceiling on the Social Security tax” (that includes the employers’ share, too, though Moore doesn’t say that).

There’s also this:

Today’s top federal income tax rate is 35%. Almost all Democrats in Washington want to repeal the Bush tax cuts on those who make more than $250,000 and phase out certain deductions, so the effective income tax rate would rise to about 41.5%.

It’s unclear how Moore gets to 41.5 percent here. Repealing the Bush tax cuts would return the top marginal rate to 39.5 percent. Deductions affect effective tax rates, which are far lower than marginal rates. Since he doesn’t explain it, and since the backdrop is the rest of this misleading piece, I’m going to assume that this 41.5 percent number is false (I believe Moore is talking about the PEP and Pease taxes, but those don’t apply to people making more than $525,000, so they can’t be included in a total tax rate that includes a millionaire’s surtax.)

To get to 62 percent, Moore also includes 4 percentage points for state taxes. It’s unclear why he didn’t include local taxes while he was at it. That would have got him another full point (it’s always worth noting that state and local taxes are extremely regressive, taking 11 percent of the income of the lowest quintile of earners, which is more than twice what the top 1 percent pays.)

All this allows Moore to plant the zombie lie that Democrats are “proposing rates like those under President Carter.” Even with all his hocus-pocus, that’s not true, either. The top marginal federal income tax rate under Carter was 70 percent, a full eight percentage points higher than Moore’s fake number. If you include all the state and payroll taxes he uses to get to Obama’s “62 percent” figure, which you have to to make the comparison, that Carter number would be closer to 80 percent.

And, as Andrew Sprung points out, that's still lower than the rate under Ike. It would be interesting to see how Moore reconciled the high taxes of the Postwar Era with its phenomenal growth.

Probably not informative, but interesting.

Metaphor of the day

From Merlin Mann via John D. Cook:

If a project doesn’t have an owner, it’s like a chainsaw on a rope swing. Why would anyone even go near that?

[Technically a simile, but do you really want to get technical here?]

More nails in the church door -- the case for the counter-reformation keeps getting stronger

The education reform movement is a strange beast. Its support is extensive and extraordinarily broad-based, bringing together players as diverse as Roger Ebert, the New Republic and Rick Scott (not that TNR is exactly proud of the commonalities -- check out how Kevin Carey manages to avoid Scott when discussing Republicans' reform positions, despite the Florida being the epicenter of the GOP's reform agenda).

Yet, despite this overwhelming consensus, it is a movement almost completely unsupported by solid, non-anecdotal evidence. I summarized some, but by no means all, of the cases where the data seemed to be running against the tenets of the movement in a post entitled: "Perhaps this is the time for a counter-reformation."

The following report (described here by the indispensable Dana Goldstein) undercuts the intellectual framework of the movement even further (though I would have liked to hear more about Canada which seems to be the more relevant example).

But what if the United States is doing teacher reform all wrong?

That’s the suggestion of a new report from the National Center on Education and the Economy, a think tank funded mostly by large corporations and their affiliated foundations. The report takes a close look at how the countries that are kicking our academic butts—Finland, China, and Canada—recruit, prepare, and evaluate teachers. What it finds are policy agendas vastly different from our own, in which prospective educators are expected to spend a long time preparing for the classroom and are then given significant autonomy in how to teach, with many fewer incentives and punishments tied to standardized tests.

Finland, for example, requires all teachers to hold a master’s degree in education and at least an undergraduate major in a subject such as math, science, or literature. Finnish teacher-education programs also include significant course work in pedagogy—exactly the sort of instruction former New York City schools chancellor Joel Klein recently called useless. All teacher candidates must write a research-based master’s dissertation on an issue in education policy or teaching practice, and will then spend a full-year as a student teacher reporting to an experienced mentor.

Shanghai takes a somewhat different approach; its teacher candidates take 90 percent of their college courses in the subject they will teach, and are expected to complete the same undergraduate programs as students who will go on to receive Ph.Ds in math or the sciences. As in Finland, however, a new teacher in Shanghai will spend the first year of his employment under the supervision of a mentor teacher, who is relieved of some of her own classroom duties in order to spend more time training the newbie.

You can see how these international examples cut against the grain of American education reform. Our approach has largely borrowed the Teach for America model. First, we attempt to bring more elite college graduates into the teaching profession by decreasing the credentialing necessary to become a teacher: no student-teaching year or education degree required, just a few weeks of summertime training are supposed to suffice. Then we expect teachers to spend much of their time preparing children for standardized tests, whose results, in turn, will be used to judge teachers’ competency.

The NCEE report makes a persuasive case that the Obama administration and its allies in the standards-and-accountability school reform movement have teaching policy exactly backward. The way to increase the prestige of the teaching profession is not to make it easier for elite people to do the job for a few years and then burn out, but to make it more challenging to earn a teaching credential, so that smart young people are attracted to the rigor of education programs. Within such a system, alternative credentialing programs for career changers could still play an important role. But alternative pathways will never have the capacity to provide the entire teacher corps.

Following this approach, Finland has been able to abolish test-score based accountability, finding that the folks who come through their challenging teacher professional development pipeline are well prepared to create their own curriculums and assessments. “It is essential for high-performing countries to trust its teachers, but it had better have teachers it can trust,” writes Marc Tucker, author of the NCEE report.

For the record, I don't believe in slavishly following international examples (even when they support my position), but when movement advocates like Klein and Rhee use these countries to bolster their arguments, they need to explain why we should pursue the opposite of these countries' policies.

Thought of the day

I was reading this statement (via a link from Felix Salmon):

Emergers also have a better chance of being part of the coveted 1% who control 40% of wealth in America someday.

It got me thinking again about precisely why we have low marginal tax rates on those who make above (for example) 500 thousand per year. Now, by low I mean low in comparison with other rates in the post-WWII era.

There seem to be two explanations: 1) competition for key talent and 2) incentive for performance.

The first seems unlikely. All US executives pay taxes in the same country so it just resets the baseline. Americans seem to be the best compensated class of business executives and stock traders so international competition can only matter so much.

The second is much clearer if we (following Linda McQuaig and Neil Brooks) look at sports stars. Did Babe Ruth or Lou Gehrig under-perform relative to Micheal Jordan due to low compensation? Do we really think that the overall quality of play would decline in some massive sense?

Now we might get fewer people wasting their lives trying to become a sports superstar if they paid more in marginal taxes, but is that really a shame?

Meanwhile, infrastructure, education and the rule of law all make economic activity possible. Is it not possible that these areas are under-invested in and could use some transfer of cash?

I do not know for sure, but it is worth thinking about.

3-day Weekend Blogging -- Junk Food edition

We've been robbed!

L.A. is unquestionably one of the world's great burger towns (and I have the only Pulitzer Prize winning food critic to back me up on this), so it's bad enough when Travel and Leisure omits us from its top ten list, but this is just adding insult to injury:

No. 2 Salt Lake City

Locals have lined up in droves ever since the streamlined burgers of In-N-Out have come to town, but otherwise the area's burger personality is quite a bit more decadent—as in, pastrami burgers. To try a quarter-pound patty piled high with more beef, check out Crown Burger, where they also add Thousand Island dressing, lettuce, onions, and cheese.

In-N-Out? Really?

Correlation is not causation . . .

. . . but this association is both alarming and worth a lot more study;

Plus, overall, people with long commutes are fatter, and national increases in commuting time are posited as one contributor to the obesity epidemic. Researchers at the University of California–Los Angeles, and Cal State–Long Beach, for instance, looked at the relationship between obesity and a number of lifestyle factors, such as physical activity. Vehicle-miles traveled had a stronger correlation with obesity than any other factor.

Unlike things like genetic factors (which tend to be reasonably stable within decades at the population level), the shift towards longer commutes has moved in parallel with increases in obesity. If the association persists at the individual level then it is a possible candidate for obesity prevention.

The problem, of course, is we continue to build low density, car centered cities which do not improve matters. It makes it hard to change average commutes on any sort of easy time scale. But a discovery that this association was causal would suggest all sorts of public health interventions.

Perhaps we were a bit too quick to dismiss the Jupiter effect

Consistency

I was looking at Andrew Gelman's blog and saw his discussion of Ray Fisman's piece on compensation. I was especially struck by this statement:

Yet this aversion to pay cuts isn't good for workers or the American economy more broadly. More people end up losing their jobs than if wages were more flexible, and there are serious long-term consequences for the workers who lose their monthly paychecks. The negative impact on a worker's earnings, health, and even the earning prospects of his children lasts decades beyond the pink slip's arrival. Creative solutions—like the furloughs that cut government salaries in California and elsewhere—might help to make lower pay more palatable, by presenting the cut as a temporary measure and by creating at least the illusion of a lower workload. If we can find other ways of overcoming the simmering resentment that naturally accompanies wage cuts, workers themselves will be better for it in the long run.

I wonder how this links with tax increases. Greg Mankiw seemed to be quite displeased by the prospect of tax increases (which are a form of reducing compensation).

If this relation works the same way, then there are two implications:

1) Tax cuts are a terrible idea as a way of providing economic stimulus as they will do little to increase output (3 hours according to Fisman's experiment) but will be greatly resented if they are rescinded

2) High taxes (like low pay) seems to have little effect on income so if you rise taxes then you should raise them by a lot so you only feel the pain of resentment once.

I am not sure that this position is correct, but it sure is thought provoking.

And NPR is probably the best of the bunch

Between poll numbers, town hall meetings and the special election in New York, the Ryan budget is starting to look like a tremendous political misstep for the GOP. To make matters worse, the pundits (who have gushed praise for Ryan in the past) seem to be increasingly open to Paul Krugman's take on the plan:

Anyway, the underlying premise behind statements like that is the assumption that the Ryan plan represents a serious effort to come to grip with America’s long-run fiscal problems. But what became clear soon after that plan was unveiled was that it was no such thing. In fact, it wasn’t really a deficit-reduction plan. Once you remove the absurd assumptions — discretionary spending, including defense, falling to Calvin Coolidge levels, and huge tax cuts for corporations and the rich, with no loss in revenue? — it’s highly questionable whether it would reduce the deficit at all.

Given all this and the fact that seniors are the Republicans' most important demographic, what were John Boehner and the rest of the house leadership thinking when they publicly came out for privatizing Medicare? Not being privy to their private conversations, we can only speculate, but I suspect that, in addition to fear of primary challenges, part of their rationale was the assumption that the Washington press corps would spin the story in a way that would minimize the damage.

To see how they might have made that assumption, check out this exchange between Neal Conan and NPR political editor, Ken Rudin:

CONAN: Another candidate who's been on the hustings in Iowa is Newt Gingrich, who's been saying, well, I'm the man that Washington has learned to hate.

Mr. NEWT GINGRICH (Republican Presidential Candidate): It is impossible to have watched television for the last week and not get the conclusion I am definitely not the candidate of the Washington insiders.

Everywhere I go across Iowa, or everywhere I see people randomly, they have figured out I'm the guy who wants to change Washington and they can tell it because the people they see on TV from Washington aren't happy with me.

CONAN: Well, not happy with him because, well, any variety of reasons.

RUDIN: Well, yes, and you know something, even - even when he said the thing about Paul Ryan, that it was a radical, it was social engineering...

CONAN: He now he says he would have voted for it.

RUDIN: Yes, but you know, when he said it at the time, of course everybody jumped on him, saying how dare you say that. But everybody said, well, that may be true. And we saw New York 26, and we'll talk about that later. That could very well have been the message that came out of it. So even when he says things that may very well be true, you know, we jump on him for saying that. And of course he went back on that word.

What amazes me about Rudin's comment is how, in less that two weeks, a senior political reporter can so completely revise his memories of an event. It's true that by now everybody has jumped on Gingrich at some point but the people who jumped when he criticized the Ryan plan were completely distinct from the people who jumped on him when he tried to walk it back. The story here isn't difficult to follow: Gingrich (probably assuming his conservative credentials were solid enough) tried to distance himself from Ryan's increasingly unpopular budget proposal; Conservatives were outraged and demanded a retraction; Gingrich clumsily backtracked, apologizing to Ryan and trying to suggest that he had misspoke partly because he wasn't expecting Meet the Press' 'gotcha' questions (despite having been on the show over thirty times).

Rudin has completely internalized the values of the Washington press corps, particularly "tell both sides of every issue" (even when there's only one side). He takes an account of a dislikeable politician's disastrous launch of a trial balloon and makes it into the story of a prophet without honor in D.C., not because he supports Gingrich (I very much doubt he does) but because he's more comfortable with the revised version.

When Paul Ryan and the Republicans put forward a plan to privatize Medicare immediately after a nominally pro-Medicare campaign, they were counting on reporters like Rudin to spin it as a serious response to a dire problem. Nor did Rdin disappoint, calling the plan "perhaps politically courageous, but maybe suicidal as well."

It's worth taking a minute to recall how common this initial response was. For at least a couple of days it looked like the press, which was deeply invested in the Ryan-as-fiscal-conscience meme, was going to converge on the interpretation that the Ryan budget, though certain not to become law, was an honest attempt to start the conversation by facing up to some hard truths (you could even find some Democrats falling in line). If this interpretation had held, the story would have probably dropped off the radar fairly quickly and the political landscape would look radically different now (insert "Sound of Thunder" reference here).

There's only one thing more annoying than the kind of post Mike Konczal just put up

You know know, the "What does [recent popular culture phenomena] tell us about [______ theory or principle]?" post. Whether it's an embarrassing reality show or a celebrity's public meltdown, someone on the internet will a pretentious excuse to talk about it.

But what's even more annoying is when someone like Mike Konczal not only writes one of these ("What can the movie Bridesmaids tell us about the Recession and Keynesian Economics?"), but actually makes it good enough that I feel compelled to quote it at length.

This is the one year forward survival rate for businesses that have launched in the previous year. So a business that launched between March 2008 and March 2009 has only a 76.3% chance of being around in March 2010. As you can see, it’s actually lower than that. It’s really hard to open a business in a recession.

This is an important point that goes against the “creative destruction” view of recessions. Those who believe that kind of classical theory think that the “work” of a recession is to let the economy recalculate what goods and services are needed going forward, while also letting the virtuous and hard working purge the incompetent and the lazy out of the system. But recessions are terrible for new entrants! Good ideas or bad ideas, who wants to launch a business in a climate with 10% unemployment? Even if you are the best manager, even if your idea is killer, if all your customers can barely pay their own bills it is unlikely that your work will pay off. The realization that this depressed state could perpetuate itself was an important breakthrough for macroeconomics. The government needs to step in to jump start the economy so that the normal trucking and bartering and allocation of a market economy can function.

If you’ve been paying attention to the headlines, you’ll note that the political economy is all wrong about what needs to be done to fix this. Most of the major discussions have been about how to make the established business community feel more encouraged. From writing regulatory rules to slashing the social safety net to extending high-end tax cuts, our hopes seem entirely to rest on whether or not we can get millionaires to work an additional 10 minutes and feel properly appreciated rather than having customers with money in their pockets available for new businesses.

The Polish economist Michal Kalecki wrote an excellent 1943 essay called Political Aspects of Full Employment that warned us about this problem. If during a recession and a weak economy the government doesn’t step up to ensure full employment, then suddenly the business community has powerful indirect control over the economy. Governments give credits and rebates for established companies to expand, businesses spend the money on M&A and consolidation and, most importantly, incumbents expand and entrench their powers. This kind of confidence building isn’t going to help a small bakery that’s trying to open.

More intellectual property silliness

From TPM:

The New York Stock Exchange now claims that you have to get their permission (express or implicit) before you use images connected to the New York Stock Exchange. So if you find a wire photo of the trading floor and use it to illustrate a story on Wall Street, you're violating the NYSE's trademark because they've trademarked the trading floor itself.

We found this out yesterday when we got a cease and desist letter from the NYSE based on an article published at TPM back in November. You can see the letter here.

TPM is represented on Media and IP matters by extremely capable specialist outside counsel. And we've been advised that the NYSE's claims are baseless and ridiculous on their face. But this is yet another example of how many large corporations have given way to IP-mania, trying to bully smaller companies into submission with inane and legally specious claims of intellectual property rights.

Well, TPM's small but we have big teeth. And we don't like being pushed around. So we're again posting the same picture as an illustration for this post. But really, what's next? Mayor Bloomberg trademarks his face and the city newspapers have to get his permission to publish photos of him so not to infringe the Bloomberg face trademark? Or more likely, the Empire State building trademark's the image of the Empire State building and demands a fee or bars photographs of the New York skyline.

...

So in the spirit of the moment I propose a contest. We know that NYSE now says you need their permission to show photographs of the Exchange in the context of news coverage. And if I understand their logic you'd actually need their permission to show a sketch you drew of the Exchange floor.

So here's the contest, what do you think NYSE's next preposterous claim of intellectual property rights will be? Can you say the words 'New York Stock Exchange' without their permission? Can you do a line drawing of the facade of the exchange without running it by the NYSE's lawyers?

As many have observed (including Thomas Jefferson who refused to patent any of his inventions), intellectual property laws are a necessary evil. They restrict the creation of new work in often onerous ways but they provide an increased incentive to create work that qualifies for protection. Even more importantly, they encourage dissemination of that work.

Over the past few decades, however, we've seen less interest in the necessity and more emphasis on the evil. The result is unfair, economically suboptimal, and undeniably silly.

[We've been down this rabbit before as you can see here.]

"Top Colleges, Largely for the Elite" -- no, really?

This David Leonhardt story has been getting a lot of attention, which is all for the good. It doesn't go very deep into the issue, but it unearths some revealing facts and makes some important points that are often left out of the discussion:

The truth is that many of the most capable low- and middle-income students attend community colleges or less selective four-year colleges close to their home. Doing so makes them less likely to graduate from college at all, research has shown. Incredibly, only 44 percent of low-income high school seniors with high standardized test scores enroll in a four-year college, according to a Century Foundation report

— compared with about 50 percent of high-income seniors who have average test scores.

“The extent of wasted human capital,” wrote the report’s authors, Anthony P. Carnevale and Jeff Strohl, “is phenomenal.”

This comparison understates the problem, too, because SAT scores are hardly a pure measure of merit. Well-off students often receive SAT coaching and take the test more than once, Mr. Marx notes, and top colleges reward them for doing both. Colleges also reward students for overseas travel and elaborate community service projects. “Colleges don’t recognize, in the same way, if you work at the neighborhood 7-Eleven to support your family,” he adds.

Several years ago, William Bowen, a former president of Princeton, and two other researchers found that top colleges gave no admissions advantage to low-income students, despite claims to the contrary. Children of alumni received an advantage. Minorities (except Asians) and athletes received an even bigger advantage. But all else equal, a low-income applicant was no more likely to get in than a high-income applicant with the same SAT score. It’s pretty hard to call that meritocracy.

Another data dump

So many links, so little time.

From Felix Salmon:

That's the kind of performance Bill Ackman can only dream of. In 2007 he raised $2 billion for a hedge fund, Pershing Square IV, dedicated to going long Target; today, in the wake of a 40% plunge in January, that fund has dwindled to just $210 million.

From Huffington Post:

"Hear yourself, ma'am. Hear yourself," Woodall told the woman. "You want the government to take care of you, because your employer decided not to take care of you. My question is, 'When do I decide I'm going to take care of me?'"

Large portions of the crowd responded enthusiastically to the congressman's barb, with some giving him a standing ovation, underscoring the fierce divisions within the electorate.

William Robert Woodall III, who goes by "Rob," doesn't appear to have been referring literally to himself, but rather speaking figuratively. It's a good thing, because financial records show the 41-year-old congressman has done very little to take care of himself in his retirement. Woodall's 2009 financial disclosure forms, filed with the House of Representatives, show that his two largest IRAs have between $15,000 and $50,000 worth of assets, hardly the type of nest egg that would be able to cover the health care costs associated with aging absent government health care.

Woodall was chief of staff to former Rep. John Linder (R-Ga.), a job taxpayers shelled out more than $100,000 a year for in 2002, rising to more than $150,000 in 2009, plus gold-plated health and retirement benefits. Woodall, who has taken his former boss's seat, now makes $174,000 a year with generous benefits.

From Yahoo:

While some NFL players are spending the enforced offseason in workouts with their teammates and others (like Minnesota's Ray Edwards(notes) and Baltimore's Tom Zbikowski(notes)) are spending it in the boxing ring, third-year safety David Bruton(notes) of the Denver Broncos has set himself on a different path — he's spending the lockout as a substitute teacher at his old high school in Ohio, teaching social studies and credit recovery (yes, they have those classes for teenagers now) for the not-so princely sum of $90 per day.

From WSJ:


Could someone please explain to business writers that hearing about a ten percent jump in ingredients doesn't mean anything to us unless you tell us how much of the retail price goes for ingredients (from Businessweek):

Surging ingredient costs are putting restaurant margins under increasing pressure. World food prices rose to almost a record in April as grain costs advanced, leading to price hikes for basics like eggs, meat and sugar. Dairy Queen, which also debuted a smaller milkshake this month, expects its ice cream costs to jump more than 10 percent this year.

Nathan Myhrvold: Egotistical patent troll, or the lowest form of life on Earth?

I am surprised Mark did not post this

But one of the blogs on our blogroll has a fun probability problem. It's fun to head on over and work it out!