Author: philg

The September 2008 Boston magazine has a cover story on high school education in the Boston area. Cambridge is #1.. in cost, having spent $24,467 per year per student. That’s up from $20,637 in 2005. SAT scores, meanwhile, have fallen from 481 verbal/500 math to 465/468, well below the nationwide average for 2007 of 502/515. Cambridge has the lowest student-teacher ratio of any school in the state and the most non-teacher staff (100 administrators for the 1541 students).

Brookline is right across the river and has a similar proximity to Boston and density of housing. They spent $15,098 per student and the average SAT scores were 571/587.

Lincoln-Sudbury, right near Hanscom Field, proves that Gulfstream exhaust is good for learning. They spent $14,500 per student and the SAT scores were 573/600. MCAS scores were excellent as well.

A separate article in the same magazine covers the new high school building in Newton, Massachusetts. The old school building had a flakey HVAC system. To rectify the problem, the town hired Graham Gund, a prestige architecture firm, and the result is throwing out the old building in favor of the most expensive public school project in the United States. By the time it opens in 2010 it will have cost more than $200 million. The Harvard design school graduates at Graham Gund apparently did not read the Massachusetts school guidelines and therefore the classrooms are going to be slightly smaller than the regulatory minimum. Newton taxpayers are going to be paying for this for the next 30 years via bonds that start out with very small payments but balloon to $10 million/year starting a few years hence (just like a subprime mortgage!).

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Walking around U.S. cities, one is amazed at how many mobile phone stores occupy the most expensive retail space. How can Sprint, T-Mobile, AT&T, and Verizon afford to waste so much money on retail stores? Wouldn’t they be better off using the money to add some towers to provide more coverage, e.g., at the JFK airport?

The most thought-provoking economics book of recent times, A Farewell to Alms, has an answer to this on page 288:

The increasing returns to scale inherent in most modern production processes imply that for the typical transaction the price is much greater than the marginal cost … That means that modern markets for industrial products … are imperfectly competitive. … The difference between price and marginal cost means that producers have an incentive to spend resources in trying to sell more product at the current price, through trying to get customers to choose their products rather than the nearly identical products of their competitors. Selling is a huge part of modern economies…

Mobile phone service is the ultimate in discrepancy between marginal cost and price. The cost of serving one additional user on an existing network is just about zero; the price collected from that user is $50 per month.

This is the least interesting insight from the book, but it is one of the simplest to relate in a Weblog.

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Airplanes: New Yorker one-pager on airline fees.

Trains: New York Times review of new book by Paul Theroux.

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Barack Obama promises to “give every child access to high quality pre-kindergarten programs”. Adjusted for expenditures on public education, America already has the world’s dumbest children. Obama now proposes to extend an American child’s exposure to the public school system.

What would happen if kids didn’t go to school early? They could end up like students in Finland, who start at 7 and finish way ahead of American kids in achievement. They could end up staying home with their parents, like John Stuart Mill who hung out with his dad and was able to read Greek and Latin by age 3.

It is unclear what new powers would need to be granted to the federal government to enable a U.S. president to force states to add a couple of years to their public school systems, but perhaps Obama will be able to get this through..

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In “Unequal America”, the cover story of the alumni magazine distributed to Harvard graduates, the U.S. comes up short, and unequal, compared to Japan, Finland, and some other places where the citizens and public policy are more virtuous. Nowhere in the article does the author consider the fact that the U.S. has more immigration than Japan and Finland. A great proportion of our population growth is derived from immigration and the children of recent immigrants. Somehow this fact never seems to make it into our public discussion of income distribution.

We could make our statistics look more like Japan’s if we accepted only very well-educated high-ability high-income immigrants. Would that make the U.S. a kinder and gentler place?

One interesting statistic from the article…

“In 1950, the average tuition price at a private college was roughly 14 percent of the U.S. median family income; public college tuition was even lower (only 4 percent). Percentages for both types of institutions fell further in the ensuing decades, bottoming out around 1980, but then rising steeply ever since. In 2005, the cost of attending the average public college was 11 percent of median family income; for private colleges, the average was 45 percent.”

Harvard, of course, charges more than 100 percent of median family income, a fact not noted in the article, but elsewhere in the magazine there is a report that the university’s $40+billion wealth is growing nicely….

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I wake up most days feeling fat, lazy, and out of shape. Watching sports on TV generally makes me feel even worse because I’m sitting on the sofa getting fatter and more out of shape, munching on Doritos, while watching the trim and fit get trimmer and fitter. Every four years I make an exception and watch a bit of the Olympics. If I’m not as flexible or talented as a 16-year-old girl, it doesn’t bother me. This year, however, I learned that one of the Olympians, Dara Torres, is a 41-year-old Jewish mother (source). Time to turn off the TV, get off the couch, and go to the gym…

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Here’s a funny aero-news.net story about the TSA inspectors at O’Hare climbing up on some $20 million regional jets by grabbing hold of the total air temperature (TAT) probe. The government employees broke 9 airplanes and inflicted further misery on 40 canceled flights full of passengers. It is unclear what the purpose of the exercise was. The TSA claims that they were trying to see if someone could open the main cabin door, yet the main cabin door is designed to be opened by someone standing on the ground.

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The MBTA installed a fancy electronic transit fare collection system here in Boston for the subway and buses. It works exactly the same as the old token-based system, a fixed price for a ride of any length and at any time of day. The only difference that I noticed was that the cost of the collection system was so high that they had to raise the price from $1.25 per ride to $2 per ride.

Now it seems that there are some additional costs. Some MIT kids figured out how to crack the system and were going to present this embarrassing information at a conference. The MBTA had to hire lawyers and sue the MIT students in federal court to block the presentation. The taxpayers had to pay a judge to listen to the various lawyers argue.

More: http://www.eff.org/press/archives/2008/08/09

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The federal government is soon to be ladling out tax dollars to bail out Fannie Mae. Who will pay for this? Joe Sixpack, a guy who works hard at two jobs, rents an apartment, and tries to support a couple of kids. Who benefits? Stockholders in Fannie Mae. Holders of bonds issued by Fannie Mae. The 5,000 employees of Fannie Mae, including the CEO who helped himself to $13.4 million in salary this year. What do the stockholders, bondholders, and employees have in common? They are all richer than average Americans and they are all going to be sucking down tax dollars paid by poorer than average Americans (plus some tax dollars from the rich, of course).

Joe Sixpack might have been thinking that he could finally afford to rent a nicer apartment or maybe even buy a place. But now Congress is giving the states $4 billion to buy up property in crummy neighborhoods. Joe won’t be getting any bargains because he will have to compete with the government when he goes home-shopping. Suppose he remains a renter? Higher real estate prices will result in higher rents, which aren’t going to be too affordable for Joe because he is about to be laid off from one of his jobs.

In Roman times the employees of Fannie Mae would be decimated, i.e., they would draw lots and 90 percent of them would beat the unlucky 10 percent to death with clubs. What would be a modern equivalent? At the very least taxpayers should have the satisfaction of seeing the highest paid 100 Fannie Mae employees fired with two weeks of severance pay (it can’t be that hard to find replacements given that the current staff’s primary achievements have been accounting fraud and then insolvency). The newspapers say that it is important for foreigners to have confidence that the U.S. will pay its debt. Let’s pay foreign bond holders in full then, using tax dollars as necessary. After all, a guy in China could not be expected to understand that a bunch of crummy houses in Cleveland were not worth $250,000 each. Let the domestic shareholders get 10 cents on the dollar and let the domestic bondholders get whatever the bonds are actually worth.

Poor Americans already subsidize wealthy homeowners through the home mortgage deduction. Do they need to subsidize incompetent managers who have already been paid $billions? Do they need to subsidize rich guys who bought Fannie Mae bonds? Do they need to subsidize shareholders who didn’t realize that the easy money from Fannie Mae couldn’t last forever?

[More: Wall Street Journal op-ed]

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Today Ford announced an $8.7 billion loss for the quarter. One might wonder how Ford, GM, and Chrysler have fallen so far so fast. None of the press coverage mentions what is likely the root cause of the precipitous decline: the 25 percent tariff that the U.S. imposes on “light trucks” (search for “light truck tariff” in Google News and you will see how sparse the coverage is). Imported cars are taxed at 2.5 percent. Imported SUVs, minivans, and pickup trucks are taxed at 25 percent. Domestic auto manufacturers are forced to compete on the world market when they make cars. They lose money on nearly every car that they make. Domestic manufacturers have a built-in 25 percent profit if they can make a pickup truck at the same price as someone in Japan, Eastern Europe, or China. Ford and GM make money on pickup trucks, though only at the expense of American consumers who pay 25 percent more for their gas guzzlers than they should.

American consumers have finally decided that they don’t need to pay a 25-percent premium for vehicles that are not efficient means of personal transportation and hence the collapse in profits and share price. Without the tariff walls it is not clear that the U.S. operations of Ford and GM, considering their union contracts and pension/health care liabilities, have any value at all.

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