Thursday, December 15, 2011

School Choice

I live in one of the best public school districts in Michigan, rated 9 out of 10 stars by Yet every day I drive my youngest child to an school in a district where the median income is about half that of where I live and the district rating is three stars. The school that my youngest son attends faces some problems: so many students are from poor homes that they just provide every child with a free breakfast and lunch, they were so short on funds for books in kindergarten that they sent home photocopied pages some weeks, students with less than stable home lives come to school unprepared and with behavioral issues.

My middle son also attends a school of choice, but it is in our district. In fact it is in the building that was my oldest son's neighborhood elementary school.

Recently I've seen several articles that decry school choice because it destroys neighborhood schools and many charters are unregulated and no more successful than the public schools which they replace. So, why do I choose to send two of my three kids to schools of choice?

School choice allows my youngest to learn in an immersion Chinese program. Research shows that learning a foreign language before the age of twelve is more effective than learning it later in life and has a host of benefits in general cognitive development. My middle son learns in a Montessori program that suits his learning style far better than a traditional classroom does.

School choice allows my middle son a learning environment better suited to his needs. It also allows students from other districts to be in his classes, making his school more diverse while affording them an opportunity they might not otherwise have.

What about the downsides of school choice mentioned above? I actually believe that they don't exist. My kids schools are regulated just like all other public schools.  Neighborhood schools that are failing should be revamped instead of closed. The fact that they are closed is a consequence of a choice (a poor one in my opinion) that our society has made.  In fact, instead of detracting from an inner city school system Post Oak Elementary pulled my youngest son from a relatively affluent district. My son brought with him two motivated, educated parents who can donate money for books and time for tutoring. He will ace the standardized tests.

My youngest son is learning Chinese. Additionally, I am pleased to report he ahead of where his brothers were at the same age in math and (on average) in reading.  He enriches an impoverished district in many ways and it enriches him.  Deregulation and closure of failing schools are awful problems but please don't conflate them with school choice.  Taking away my choice won't solve those problems.

Thursday, October 27, 2011


I learned programming and made a lot of money as an owner of a software company. I look like a self made man, but…

My company would not have been possible without the internet (which grew out of DARPAnet), the interstates my employees used to get to work, the public schools that gave me an educated workforce, the courts that allowed me to enforce contracts with clients, the government agencies that allowed me to know my food and water and medicines were safe, the postal service…

So, while I've been a big success, I owe a lot to the government. More importantly I want my kids to have the same kind of opportunities that I had. I am the 99%

Tuesday, October 4, 2011

SuperFreakonomics makes an unsupported claim

I finished reading SuperFreakonomics which repeatedly claimed that government solutions are more complex than necessary, with no evidence to support the assertion, so I sent them this e-mail.  I'm not holding my breath waiting for a response.

I have read your books with great interest.  Freakonomics and SuperFreakonomics were in many ways about not accepting the conventional wisdom (drug dealers don't all get rich) and about not allowing your political views to shape your perceptions of how the world works (abortion decreases criminality).  You prefer to make claims based on evidence.

Unfortunately, in SuperFreakonomics, you twice repeated an assertion that I believe is rooted in politics and is entirely unsupported by the data.  Conservatives hold that government is less efficient than the private sector and that its solutions to problems are more complex than necessary.

It is unarguable that all complex human endeavors involve a large amount of waste.  Government is full of bureaucrats engaged in empire building who would spend money more carefully if it were their own money that was being spent. However, I have spent time in private industry, which I can assure you is full of executives engaged in empire building who would spend money more carefully if it were their own money that was being spent.

As far as I can tell, there is no evidence that private industry is more efficient than government.  Anecdotaly, we see a huge  rate of small business failures ( Large businesses also cause huge losses to our society, witness AIG, Enron, WorlCom, and Lehman. Management receives outsized compensation, even when performing so badly that corporate boards fire them (

Private industry often provides complex solutions (like CDOs) to simple problems like home ownership. Executives  laugh all the way to the bank (think Angelo Mozilo) while sticking shareholders and society with the downsides.

In fact, there are many problems for which government provides solutions that are less complex and more cost effective than the private sector (think of health care, education, parks, and highways).  Many have argued, I believe correctly, that the U.S. system of delivering health care produces inferior results at greater cost than government run health care in other countries. Even if we only consider the U.S. we see Medicare and the VA providing more cost effective health care than private insurance companies. Medical billing is a private industry solution that is more complex than anything a government could dream up.

Countries without strong government programs such as Pakistan, Zimbabwe, and Somalia do not see complex problems solved effectively.  In the history of the world no country has made its average citizen rich relative to the citizens of other countries without a strong government - so the complex problem that government solves best is how do we make our society grow rich. Perhaps you should stop doing our society the dis-service of claiming that governmental solutions are overly complex unless there is evidence to back that claim.

Saturday, May 28, 2011

Lip Service to Education

I constantly hear politicians, media pundits, teachers, and philanthropists opining on how important education is. Nevertheless, the fights almost always boil down to money. The fact that almost everyone ignores proven research on things that work but don't significantly affect the costs shows that providing a better education is not what the argument is all about.

The right wants to spend less on education, so they vilify the teachers unions. They talk about merit pay (but use it as an excuse to punish not reward), and abolishing teacher tenure (because newer teachers are paid less than those with seniority). Conversely, the left talks about class size and making sure that all teachers are "highly qualified." neither of which has been demonstrated to make substantial differences in achievement (Though I would argue that classes are far too large now, but that is another essay).

Here are a few things that would not cost a lot of money and which have been proven, yet I rarely hear either side in the debate seriously advocating for them:

1. Teach foreign language in earlier grades instead of in high school. You could put me in Beijing for a year and at the end of the year I would speak Chinese abysmally, but if you put my five year old there for a year, he'd speak fluently. The reason is not that he's so much smarter than me, but that the brain changes around the age of twelve, after which it becomes far less efficient at language acquisition. So, why do we wait until students are fourteen to start teaching foreign languages?

2. Start high school later in the day. Teens are chronically sleep deprived and their educational attainment suffers as a result. Study after study finds that switching them to a later schedule that better matches their circadian rhythms results in better cognitive function, yet we routinely make high school start earlier than middle school and elementary school.

3. Get rid of over processed foods in school meals. This week, the school tried to serve my kindergartener a "oatmeal chocolate chip bar" for breakfast. Ignoring the long list of chemicals in the ingredients, I found it had 9 grams of fat and 23 grams of sugar. It is unhealthy and when the sugar high wears off, the kids crash and can not learn. A recent study in Michigan found that eating school lunch instead of sack lunch was a bigger risk factor for obesity than two extra hours in front of a screen every day. Why not feed kids healthy food? It can't be that much more expensive.

4. Abolish DARE. Study after study shows that DARE is a waste of children's time. It does not affect drug use. After each study, DARE changes the curriculum a bit and claims that the last study was flawed because it studied an old curriculum. Why spend time and money on a program that doesn't work? Only because it makes adults feel happy that they are doing something about drugs in schools and to maintain good relations between the police and school administration.

Now that I've established that excellence in education is secondary to most arguments about education, I'd like to state for the record that you get what you pay for so until we increase education funding our system will continue to deteriorate.

Sunday, April 10, 2011

Talking to Tea Partiers?

I would describe myself as a moderate liberal. As part of my education, which included a thorough grounding in economic theory, I received an MBA from a top 10 school. My capitalist bona fides include not just my education -- I have owned a business, worked for companies large and small, and have been very successful financially. Nevertheless, I believe in big government and nothing drives me battier than Tea Partiers railing against health care reform by screaming that the government should keep their hands off Medicare, against the deficit while supporting tax cuts for the wealthy that we can ill afford, and against the very spending (whether on Social Security, highways, or medical research) that has allowed them to achieve a lifestyle that their grandparents would never have dreamed possible.

For a long time I did not think that it was possible to talk to Tea Partiers in a rational way, let alone to find common ground with them. Lately, however, I think I have begun to better understand the thinking of a subset of Tea Partiers and believed that there may be room for some points of agreement.

What Motivates Me to Love Big Government?

I was born in the most prosperous country in the history of the world at a time when it was at the height of its prosperity. That prosperity was built on many planks. One was a shared culture and a sense of patriotism that allowed the country to move forward together. Certainly there was friction between races, between labor and capital, and between government and the private sector, and between the sexes, but all players would somehow inch forward together on the swinging pendulum of compromise.

Government served as a referee, balancing (albeit imperfectly) the need for a clean environment and decent labor standards against the needs of industry, and so on. While government may have been corrupt sometimes, it still did things that it thought advanced the cause of creating a better society and a stronger country. Sometimes those things worked (for example giving away 40 acre homesteads or mandating high school education) and sometimes they failed (think of public housing projects).

I grew up in a the most prosperous economy in the world in large part because the government mandated high school education earlier than other countries did, subsidized college education on a massive scale with the GI bill, and funded research. This created the intellectual infrastructure for our economy, a highly educated workforce. The government also created the physical infrastructure, interstate highways, universal telephone and electrical service, roads and bridges.

I have been immensely successful and I owe much of that success to big government. I was educated in universities that were created and nurtured by government. My company wrote software which was deployed on the Internet (which evolved from DARPAnet Defense Advanced Research Projects Agency). Government gave my business a well educated workforce, a (more or less) stable economy, and a robust infrastructure, which allowed me to contribute to society by employing dozens of people and creating new products.

What Motivates Tea Partiers to Hate Big Government?

Given the immense success that our country has had, despite being made up largely of the descendants of various waves of immigrants and the indisputable conclusion that government played a role in that success, it is hard to understand the animosity that tea-partiers feel toward the government. I'm going to ignore the more outrageous Big Government wants to take away our liberties (usually meaning not allow us all to carry our second amendment guaranteed RPG and missile launcher into our kids' school) and concentrate on the economic arguments.

Tea-partiers are afraid that government wants to tax hard workers (meaning people like them) to allow free loaders (meaning those that work for the government and the urban poor) to make irresponsible decisions and be lazy. One tea-partier I know, though she would deny the label, lived in a communist country where in the name of progress and fairness they took from those who were successful and gave to those who were in political favor. When Obama says we need to "share the wealth" she goes ballistic because she's seen what the extreme of "sharing the wealth" does - steals from anyone who is successful to allow free loaders to enjoy the fruits of someone else's labor. Of course, this almost completely eliminates the incentives to work hard and society and the economy stagnate.

Tea partiers also believe that government is inherently less efficient than business because business has an incentive to make a profit. However, employees of big businesses, especially those that are publicly traded, have plenty of incentive to enrich themselves at the expense of the company. Furthermore, what is good for the company's bottom line may not be good for the world (dumping toxic waste or creating toxic assets, for example). Whenever, someone repeats to me the dogmatic idea that government is less efficient than the private sector I say that given examples like Worldcom, Enron, AIG, and General Motors that is an outrageous claim to make in the absence of any data to back it up. Of course, nobody has any such data. I've been in business for decades and the waste, fraud, and abuse I've seen in the private sector makes my head spin.

Spreading the Wealth

When I point out to my conservative friends the fact that over the last several decades all of the gains in our nation's wealth and productivity have gone to the richest, that does not sway them. From their perspective, you get what you work for. Wealth redistribution for the sake of equity just saps the motivation for the poor to try.

However, a society in which being born poor means an almost certain life sentence of poverty also saps motivation for the poor to better themselves. Unfortunately, our society has moved very far in that direction over the last several decades. To me spreading the wealth doesn't mean wholesale confiscation of my wealth, but it does mean that I should be expected to contribute enough so that my children and grandchildren can have opportunities similar to my own.

Even in my own relatively affluent community I see the effects of the anti-government, anti-tax policies that have overtaken the debate. Every year the state of Michigan cuts per-pupil funding for our public schools. When my oldest was in kindergarten I thought that it was bad because the school had to cut the reading specialist that pulled the talented readers out of class for advanced reading. In the 7 years between my oldest and youngest, not only have we not gotten back a reading specialist, class size for kindergarten has grown from 18 to 27.

Our roads are pot-holed. Our library can not construct it's own building. Students need to pay to participate in athletics or the school play. Higher education budgets get cut, making even a public college more expensive. Meanwhile, Michigan cut income tax rates for both individuals and businesses again and again.

Where Tea Partiers Should Be Able to Agree with Me

With my new understanding of the tea-party I think that I should be able to find areas where I, a liberal, agree with them. Although I am not sure that I have a good solution, none of us want to encourage generations of unwed teenage mothers. So, I think that we should all be able to support decent schools that would give the children of teenage mothers a chance at a decent education and a decent career. However, there is a real cost to education, public safety, childhood nutrition, and pre-natal care. In other words, there is a real cost to giving the poor a chance.

Inevitably, some of the money we spend will be wasted, but I can support wasting money to build the well-educated, productive work force of tomorrow. We all agree that while you may sometimes find a bargain, usually you get what you pay for. That is ostensibly why businesses pay so much for CEOs. Sure, sometimes you waste money on an Anthony Mozzilo, but if you want results you attract the best with high wages and great benefits.

A Challenge to Conservatives

So, here is my challenge to the tea party. Can you show me a country whose citizens prosper without a robust government? If not, since I don't want my kids to have to live in a society where they live in gated communities, with private roads, private security, and private schools, surrounded by growing slums how do you propose moving society forward? Decades of tax cuts for the wealthiest and deregulation have given us a collapsed economy with stagnant wages for all but the richest. Where is your path forward that keeps us from becoming a third world country with crumbling infrastructure and a tiny middle class?

Thursday, January 20, 2011

The Rich are Doing Even Better Than You Thought.

The income of the top 1% of the U.S. population has been growing while the income of the bottom 80% has stagnated for over a decade. Published figures claim that the top one percent garner 24% of all income (1) or 17.4% if volatile capital gains are excluded (2). Unfortunately, these figures severely underestimate the magnitude of income stratification in the U.S.

Why 29% is a Huge Underestimate.

The methodology used to determine the share of income for the top one percent of the population uses taxable income as its basis. However, not all income is taxable. Poorer taxpayers have fewer opportunities than the rich to shelter and defer income.

Some income may never be taxed (such as earnings on a 529 plan which are used to pay for qualified educational expenses or income from ROTH IRAs and ROTH 401ks). Trusts can be used to avoid estate taxes.

Income can be also be deferred with deferred compensation agreements, by not taking capital gains, increases in the value of unvested stock options, qualified retirement plans, etc.

Income can be offset with taxable losses - and those losses need not be real to be legal. For example the IRS allows you to claim that a residential building that you are renting out loses all of its value over 27.5 years (3). In the real world, we know that is not the case. Another example is that by selectively selling specific lots of stock a taxpayer can produce losses, often on investments that are actually in the black.

So, What Do the Richest 1% of Americans Really Make

If we could back out all of the tax avoidance strategies that reduce taxable income what would the real percentage of income controlled by the top 1% of the population be? It is hard to know precisely how much income is hidden in tax shelters, deferred, offset by paper losses, and so on, but changes in wealth give us a clue. Since we know that " between 1983 and 2004, in good part due to the tax cuts for the wealthy and the defeat of labor unions: Of all the new financial wealth created by the American economy in that 21-year-period, fully 42% of it went to the top 1%"(4) that sets a floor. Of course we need to add to that the percentage they consume and the percentage of assets that are depreciated for tax purposes but have real value or are otherwise hidden. Back of the envelope, I'd guess the top 1% of the U.S. population gets 45% of the nation's income.

Why it Matters

Republicans often argue that it is unfair that the top 1% of earners pay 38% of the Federal income tax (5). They conveniently ignore the fact that the overall percentage of taxes paid by the richest are much lower than that since payroll taxes are only charge on the first $106,800 of earnings (6)and that sales taxes take a far bigger share of income from the poor and middle class. However, even if we only consider income taxes it appears that the richest are not even paying their fair share.

(1) As of 2007
(2) As of 2005