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Today’s New York Times has some interesting stories on the subject of “Will Americans who are called to the field of education also respond to the call of economic incentives?”:

• “Some Owners of Private Colleges Turn a Tidy Profit by Going Nonprofit” (where “tidy” = a few hundred $million)
• “Central Figure in the Atlanta Schools Cheating Scandal Dies” about a school superintendent who “received more than $500,000 in performance bonuses.”

Spoiler alert: The answer seems to be “yes”.

Don’t miss the link from the first article to a story about a school with a $2.1 billion market cap working the same angle (also note the inability of the journalist to distinguish between investment in a company and its market cap). Speaking of market cap, it turns out that the “fair market price” in this insider’s deal will be higher than what investors are currently willing to pay on the NASDAQ.

[Note that these dovetail nicely with yesterday’s article by a philosopher demanding that America’s educators teach morality to students. And also with “Lawyer at Top of Huge Fraud Pleads Guilty”, an article about how “more than 131 police officers, firefighters and other city workers” who obtained disability benefits through fraud. (Note that working the disability system was a rational decision: “More than 100 of the applicants have pleaded guilty. A majority received no jail time but returned the money they stole.”)]

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“State to offer early retirement deals; layoffs may follow” is a Boston Globe story about the state government here in Massachusetts facing a $1.5 billion budget gap. With a total population of 6.745 million and a working population of about 3.5 million, that means the average worker in Massachusetts needs to pay $429 more each year in taxes.

Let’s assume that government spending cannot actually be cut. My favorite pet idea for increasing government revenue is congestion pricing for the highways. If the average worker paid $2 per working day in congestion fees, the budget gap would be closed. Traffic jams would be eliminated and people could be more productive, thus generating more income, and paying more income taxes as well.

Another area worth examining might be the Massachusetts alimony system. This New York Times graphic (based on a study by Economics professor Elizabeth Currid-Halkett) shows that people in Boston spend 3.3X as much on alimony payments, relative to their income, compared to citizens of the average American city. When an adult is a dependent on another adult and receives cash payments via a formula based on the difference between their incomes, both have a reduced incentive to work (see this academic paper from the Federal Reserve Bank of Minneapolis, for example). The alimony payor may be in the 80 or 90 percent tax bracket for a marginal dollar of income (i.e., he or she will keep only 10 or 20 cents of an extra dollar earned), thus reducing the incentive to strive for higher pay and therefore higher tax payments to the state government. The alimony recipient will suffer a loss of alimony cash if he or she earns an extra dollar, thus also falling into an exceptionally high tax bracket and resulting in what the Fed economists call a reduction in labor supply (“given the high responsiveness of labor supply to marginal labor tax rates”).

For those who were never married, Massachusetts operates a similar adult-to-adult dependency system through its offer of unlimited child support profits. As in Wisconsin, the Massachusetts citizen who wants to have the spending power of someone in occupation X can either train to become qualified for that occupation and then work full-time or simply have sex with three people in occupation X. Economists would predict that if a person can get tax-free payments for having sex and spending 15 hours per week with children, something that he or she may already have wished to do, that person is less likely to pursue traditional W-2 employment with associated taxes.

As part of our research into family law nationwide we found a fairly typical upper income Massachusetts child support and alimony case where a University of Pennsylvania graduate out-earned her classmates by a factor of roughly 3.2X. After a four-year marriage with a two-year-old child, she sued her husband and obtained a mostly tax-free annual income of $143,808, plus defendant-paid housing and child-rearing expenses. Judge Maureen Monks of Middlesex County wrote, after the trial “[the plaintiff] now has a responsibility to contribute to her child’s financial needs commensurate with her training and skills. There are no health issues that would prevent her from seeking or maintaining some employment at this time. She is capable of earning at least part-time employment, especially given the employment of the full-time nanny and [the child’s] attendance at pre-school and camps.” The successful plaintiff declined our request for an interview but we tracked down the defendant and learned that, despite the judge’s admonitions, the plaintiff has not chosen to return to work. That’s a lost taxpayer from the Commonwealth’s point of view. (See “Women in Science” for more detail on this case.)

[You might ask how common it is for a Massachusetts resident to be affected by the effective higher tax rates that result from being a child support lawsuit plaintiff or defendant. The U.S. Census March 2014 Current Population Survey shows that 9 percent of women in Massachusetts, age 30-40, said that they were receiving child support. If we correct for the known degree by which Americans under-report alimony revenue, that means roughly 18 percent of Massachusetts women in this prime working-age group receive child support. If we assume that the typical child support plaintiff is collecting from slightly more than one defendant, roughly 15 percent of men in the same age group are paying child support. That’s roughly 16.5 percent of prime working-age people in the state who are discouraged from working. (Slightly higher if you want to include the men receiving child support and the women paying, but Census data show that 97 percent of people collecting child support in Massachusetts are women.)]

Massachusetts is #4 among U.S. states in the percentage of residents on Welfare (article: “Only Tennessee, Maine, and California ranked higher”). If you add in child support and alimony we are probably #1 in officially established adult dependency. (Children are only half as profitable in California and Maine, compared to Massachusetts, and the profitability of children in Tennessee is limited by a $25,200/year cap on child support for a single child.) We could presumably get a lot more people to work and pay taxes if they faced the same economic incentives as people in other states.

Massachusetts could consider trying to boost its competitiveness as a corporate headquarters by eliminating tax on corporations. The tax rate is currently 8 percent of profits, but it can also be 0 percent if a company has the connections and accounting/legal sophistication to qualify for various exemptions. The result is that about 5 percent of state revenue comes from corporate taxes (Tax Foundation). This analysis from Suffolk University characterizes our business tax laws as “a hodgepodge of poorly-conceived measures that violate the most fundamental principles of tax equity. They discourages business from locating in the Commonwealth and serve alternately as a target for revenue-hungry state government and a mechanism for dispensing largess to special pleaders.” Why not just tear it all down and be satisfied with collecting income tax, sales tax, property tax, etc. from the employees of and investors in companies that choose to locate here? Massachusetts could then eliminate all of the special programs (and the bureaucrats to administer them; partial list) that provide tax breaks to companies that are politically connected.

What about an equivalent to taxing natural resource extraction, something that works great for other states because it is tough to move an oil well from Alaska to New Hampshire, for example. Does Massachusetts have anything that is valuable and almost impossible to move? Yes! Universities, elaborate hospitals that are technically non-profits, and private boarding schools such as Phillips Academy in Andover (where King Bush II attended high school). Perhaps there are better ways to tax the profit-making parts of these institutions while leaving them as non-profits (albeit non-profits that have somehow managed to accumulate billions of dollars of what a corporation would call “retained earnings”!). For example, if a student comes to Boston and rents an apartment, he or she pays property taxes indirectly (through the landlord). If the same student comes to Boston and rents an almost identical dormitory room, no property tax is paid. Depending on the state, living in a fraternity or sorority may be be tax-exempt (see this article on a controversy in Vermont). From what I can gather, Massachusetts already collects real estate taxes from college fraternities and sororities. As each college student here requires some expenditures on a variety of public services (police, fire, public transport, etc.), the state could consider a “capitation tax” for everyone above the age of 18 who lives for at least 6 months in Massachusetts. There may be as many as 400,000 students here. An annual tax of $3,750 on each student would close the budget gap (coincidentally this is almost exactly 6.25 percent of the cost of attending Harvard for one year and 6.25 percent is the Massachusetts sales tax rate for general goods).

What do readers think? How does Massachusetts get out of this fiscal hole?

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Some photographs from Before They Pass Away are on display in Manhattan right now (Bryce Wolkowitz Gallery). I went with an 11-year-old friend and pointed to the first image and said “It’s terrible that some people are so poor that they can’t shop at LL Bean. Also, I’m sure that it was tough to convince these native people to put down their iPhones and pose for half a day.” If you’ve been spoiled by our digital era, that Jimmy Nelson hauled a 4×5 (sheet film) view camera around is impressive. That he has been accused of “staging” images is hardly surprising. One is unlikely to get a surprise candid of a person, indigenous or otherwise, with a view camera (about the size of a toaster oven… plus tripod).

What do readers think of the protests around this work? (example; example) Are readers smart enough to know that modern tribal people are more likely to be found in a T-shirt and talking on a Nokia phone? That the complicated outfits in the book were more likely once-a-year celebration attire rather than everyday garments, even back in the old days?

What if the photographer had refrained from talking about how these groups are “passing away”? Just told tribal folks to get the fanciest old-style clothes that they could find, posed them, and presented the photos to speak for themselves? Would the criticism have been less intense?

More: see Jimmy Nelson’s web site.

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I attended a “morning coffee with the principal” at an elementary school in a rich suburb of Boston.

The principal explained the hiring process. For every open job “hundreds” of nominally qualified people will apply. There are, nonetheless, seldom more than two or three candidates about whom he is enthusiastic and these candidates may be getting offers from other districts as well. Once hired, a teacher gets “professional status” (what used to be called “tenure”) after three years. Back in the early 1990s Massachusetts imposed a regulation that all teachers must obtain a master’s degree within five years and thus teachers will spend a portion of their nights, weekends, and summers getting a degree that typically enriches our local universities even if there is scant evidence that it affects their classroom performance.

As with getting into many colleges, women are discriminated against when seeking employment as elementary school teachers. The principal explained that he favors the academically inferior sex (i.e., men) when screening applications. However, a disproportionate number of these guys turn out to be duds during interviews and therefore the workforce is mostly female.

What if a tenured (4th year or beyond) teacher does absolutely nothing, I asked? Tells the kids to look at their iPads and not bother him? The principal explained that after two years of complete non-performance he would be able to write a recommendation to the superintendent that the teacher be fired. So the teacher is gone after doing nothing for two classes of students? “No,” said the principal. “Of course there is a legal process that begins after two years.”

Parents asked a lot of questions about standardized testing. Massachusetts has its own MCAS system for grades 3-10. There has been talk of adopting a national PARCC test that is more aligned with the Common Core standards. Unlike the paper forms that we filled out in the 1970s with our #2 pencils and that found their way into a scanner to be graded by an IBM mainframe, the PARCC test must be taken on a computer. This leads to two problems for school districts. One is that they don’t have enough computers for all students to take the test simultaneously, thus creating a logistical challenge of herding batches of students into computer labs. The second is that the software has tended to be broken and students are unable to take the test at all. I said “Well at least this will provide jobs for the programmers who built healthcare.gov since it seems unlikely that Amazon and Google are anxious to hire them.”

How hard are these standardized tests for a group of children who are mostly from at least upper-middle-class families? The principal explained that about 87 percent of the students score “proficient” or “advanced” in the first years of the test and nearly all are “proficient” or “advanced” by the time they complete 8th grade.

Homework was another topic of conversation. With a school day so much longer than in other countries how come there is homework at all? The principal explained that there was no pedagogical theory behind the homework but the school assigned it because some parents demanded it. “It is really about preparation for high school,” he said, “but teachers can also use it to see what students learned the day before.”

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“Many In Mass. Await The Next Blizzard With No Heat” is supposed to be a heartstrings-pulling story about how the government isn’t doing enough to help poorer families in Massachusetts pay for heat. What struck me is how many people had to jump through an extra welfare hoop. The article says “Roughly 200,000 households in Massachusetts qualify for help”. Census data show only about 2.5 million households in the state total. Thus 1 in 13 Massachusetts households has to apply every year to a government-paid worker who will decide whether or not to give them some cash. Note that these workers are different from the ones who decide whether or not to give out food stamps, so if you want food and heat you have to visit at least two offices. And those workers are different from the ones who decide whether or not to give out a free or subsidized house. There will be a separate process, with additional government-paid workers, to get free health insurance. And then there is a separate group of government workers who hand out unrestricted (TANF) cash…

Just how many government workers can a poor American support?

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I’m listening to Mark Twain: Man in White: The Grand Adventure of His Final Yearsas a book on tape (not sure that I will finish it; this is the kind of book where “unabridged” is not a selling feature). A couple of interesting items from the first disc:

• Mark Twain wanted perpetual copyright. He was highly motivated to produce works that his heirs could earn an income from and lobbied Congress to make copyright work the same way as land ownership. (Though I don’t think he was advocating for a property tax as well!) Twain’s energetic efforts, including writing pieces scheduled for release decades after his death, proved Gregory Mankiw’s point in “I Can Afford Higher Taxes. But They’ll Make Me Work Less.”
• Mark Twain’s doctor told him, and Twain believed him, that his tobacco smoking habit would kill him via heart disease. This was at least as early as 1900. (Twain lived from 1835 to 1910, from the Steam Age to the Aviation Age.)

The second point is the one that I find most interesting because it wasn’t until the 1960s that health warnings were placed on cigarettes. This was, presumably, because people in Washington, D.C. thought that there were a lot of Americans who believed that conducting what had been an occasional Indian ceremony every 10 or 15 minutes was part of a healthy lifestyle.

If Twain knew that smoking would kill him, which of course it did, why did it take so long for tobacco smoking to become a public health issue in the U.S.? Is it that a lot of other stuff was also dangerous back then and, once antibiotics and vaccines were widespread we finally had the time and attention to think about a habit that killed people in their 60s and 70s? Or something else?

[On the copyright point, Twain’s testimony, delivered in what would become his trademark white suit, did help change copyright in the U.S. from “42 years” to “death of author plus 50”.]

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A friend sent me a CNN article regarding Anne Dias Griffin’s attempt to get $12 million per year in child support for three children under the age of 10. Part of the reason that she can’t make ends meet on the $50 million that she already has in the bank (most of that is proceeds from her 10-year marriage to rich guy Ken Griffin, under a prenuptial agreement that she is challenging in an attempt to get more) is that she wants to spend $3.6 million per year on jet charter.

I emailed a friend who owns a jet charter business to ask what kind of plane would be sensible for a Chicago resident with three children going to New York, California, etc., and how much it would cost. Here’s his answer:

Lear 60 or Hawker at $3,500 per hour at most.

… when the alimony doesn’t work pack it all into child support.

Let’s back out the numbers then. Ms. Griffin wants her preschool-age children to fly roughly 1000 hours per year, the same number as the FAA maximum for a full-time airline pilot (see FAR 121.471: “No certificate holder conducting domestic operations may schedule any flight crewmember and no flight crewmember may accept an assignment for flight time in scheduled air transportation or in other commercial flying if that crewmember’s total flight time in all commercial flying will exceed— (1) 1,000 hours in any calendar year;”).

How far can one go in an 8-passenger Lear 60 in 1000 hours? The plane cruises at roughly 500 miles per hour. The children would thus be flying close to 500,000 miles every year, equivalent to circling the Earth at the Equator almost 21 times.

You might ask how far Ms. Dias Griffin could go in a jet-powered plane with only 4 passenger seats plus two up front for the pilots. That would be something like a Piper Meridian turboprop or perhaps the forthcoming Cirrus Jet (thanks to the miracle of Chinese ownership, the personal jet is now slated for certification and delivery in the “fourth quarter” of 2015 (i.e., December 31 at 11:59 pm)). With $3.6 million, she could buy a new one roughly every 6 months. At $1000 per hour to charter, she and the children could fly 3,600 hours per year at roughly 300 miles per hour, more than 1 million statute miles.

What if she earned a pilot certificate during the time that the four nannies are taking care of the children? (she does not seem to have a job) She could then fly the children herself in a Cirrus SR22 at a cost of roughly $250/hour (flight school rental block rate, including fuel). The $3.6 million would then cover 14,400 hours per year of flying time. As there are only 8760 hours in a year, Ms. Dias Griffin would be able to fly up to 1.75 million miles each year with her three children in the SR22 and have $1.5 million left over to pay for sundries. As the SR22 can seat five, assuming at least one occupant is a child, she could take along an instructor for two-pilot safety.

Related:

• report from airplane convention where a woman described how she purchased a $700,000 Cirrus SR22 using child support cash

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Net Neutrality is back in the news. I haven’t changed my views substantially since my April 2014 on the topic, though I am fearful that the cure of an additional layer of government regulation may prove to be worse than the disease. (Internet providers to consumers are already functioning under a certain amount of government regulation, e.g., municipal regulations that exclude competitors.)

What do readers think? Who has a good argument against net neutrality when both publishers and consumers are already supposedly paying for the bandwidth consumed?

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I was talking to some folks at an MIT spinoff company. They may need a cash infusion this summer. Why? They got a $1 million grant from the U.S. Navy. The money was supposed to start flowing last fall. But then the Navy installed a new computer system for managing these research grants and payments. It is now “chaos” in Washington, D.C. The Navy still wants them to do this research but the money won’t flow until this summer, roughly a 9-month delay.

This is a good illustration of why you never invest in a startup! It is impossible to predict all of the ways that things can go wrong and revenue can be delayed.

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“Feeding Infants Peanut Products Could Prevent Allergies, Study Suggests” (nytimes) is a recent example of the public learning about the incompetence of medical researchers. Previously these folks had told parents to keep children in a nut-free bubble so as to prevent nut allergies from developing. Now they are saying that a nut-free bubble may lead to a nut rash later in life. In a society that spends so much of its time and effort trying to separate children from nuts and so much money on medical research, how could this question not have been answered definitively and correctly many years ago?

From a consumer’s point of view an epidemiologist or other medical researcher is a “scientist” in the same category as a physicist or chemist. So the manifest inability of “scientists” to answer a simple question such as “Is a child more or less likely to develop a peanut allergy given early peanut exposure?” could easily make a consumer skeptical when a “scientist” says “I have a pretty good idea what the average global temperature 100 years from now is going to be.”

What do readers think? Do these constant reversals on everyday questions make consumers wary of science in general?

Related: Back in the early 1980s the great mathematician Gian-Carlo Rota would say “The methods of the biologist are not distinguishable from those of the stamp collector.”

[Of course it may well be the case that Earth turning into Venus 100 years from now is a simpler question than the origin of nut rashes. But that would not be obvious to someone without a degree in the physical sciences.]

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