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If you’ve been wondering “What happened to Mark Zuckerberg’s big donation to the Newark schools?”, this week’s New Yorker magazine has the answer for you: “Schooled” by Dale Russakoff.

According to Russakoff, most of the money seems to have been spent on consultants:

The going rate for individual consultants in Newark was a thousand dollars a day. Vivian Cox Fraser, the president of the Urban League of Essex County, observed, “Everybody’s getting paid, but Raheem still can’t read.”

One goal was to attract young smart people to work as teachers, but it turned out that old not-necessarily-smart people were entitled to all of the money under union contracts that required teachers be paid according to seniority.

in return for union support, the legislature left seniority protections untouched….

Zuckerberg had hoped that promising new teachers would move quickly up the pay scale, but the district couldn’t afford that along with the salaries of veteran teachers, of whom five hundred and sixty earned more than ninety-two thousand dollars a year [i.e., more than $150,000 per year including pension commitments and other benefits]. A new teacher consistently rated effective would have to work nine years before making sixty thousand dollars.

Zuckerberg’s donation attracted another $100 million in matching funds, but it was nowhere near enough:

Improbably, a district with a billion dollars in revenue and two hundred million dollars in philanthropy was going broke. Anderson announced a fifty-seven-million-dollar budget gap in March, 2013, attributing it mostly to the charter exodus. She cut more than eighteen million dollars from school budgets and laid off more than two hundred attendance counsellors, clerical workers, and janitors, most of them Newark residents with few comparable job prospects. “We’re raising the poverty level in Newark in the name of school reform,” she lamented to a group of funders. “It’s a hard thing to wrestle with.”

Did having a charismatic political superstar as mayor help?

Meanwhile, [Cory Booker] was managing a busy speaking schedule, which frequently took him out of the city. Disclosure forms show $1,327,190 in revenue for ninety-six speeches given between 2008 and May, 2013. “There’s no such thing as a rock-star mayor,” the historian Clement Price, of Rutgers University, told me. “You can be a rock star or you can be a mayor. You can’t be both.”

More: read “Schooled”

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Thomas Piketty’s Capital in the Twenty-First Century contains a lot of historical data.

Piketty relies on the fact that there was tremendous stability in both prices and interest rates during the 18th and 19th centuries:

In the novels of Jane Austen and Honoré de Balzac, the fact that land (like government bonds) yields roughly 5 percent of the amount of capital invested (or, equivalently, that the value of capital corresponds to roughly twenty years of annual rent) is so taken for granted that it often goes unmentioned

the two measuring scales were used interchangeably, as if rent and capital were synonymous, or perfect equivalents in two different languages. Now, at the beginning of the twenty-first century, we find roughly the same return on real estate, 4–5 percent, sometimes a little less, especially where prices have risen rapidly without dragging rents upward at the same rate.

To back up a bit: the first crucial fact to bear in mind is that inflation is largely a twentieth-century phenomenon. Before that, up to World War I, inflation was zero or close to it. Prices sometimes rose or fell sharply for a period of several years or even decades, but these price movements generally balanced out in the end.

More precisely, if we look at average price increases over the periods 1700–1820 and 1820–1913, we find that inflation was insignificant in France, Britain, the United States, and Germany: at most 0.2–0.3 percent per year. We even find periods of slightly negative price movements: for example, Britain and the United States in the nineteenth century (−0.2 percent per year if we average the two cases between 1820 and 1913).

Piketty is therefore able to look at hard-coded numbers in novels for guidance as to what an average and comfortable standard of living would cost.

In Great Britain, the average income was on the order of 30 pounds a year in the early 1800s, when Jane Austen wrote her novels.30 The same average income could have been observed in 1720 or 1770. Hence these were very stable reference points, with which Austen had grown up. She knew that to live comfortably and elegantly, secure proper transportation and clothing, eat well, and find amusement and a necessary minimum of domestic servants, one needed—by her lights—at least twenty to thirty times that much. The characters in her novels consider themselves free from need only if they dispose of incomes of 500 to 1,000 pounds a year.

Balzac, like Austen, described a world in which it took twenty to thirty times that much to live decently

Let’s consider today’s numbers and see if things are more or less equal. The Census Bureau says that median household income is about $53,000 per year. What would it mean to live comfortably and elegantly today? A modern Hyundai is much more comfortable than a horse-drawn carriage. A JetBlue Airbus with extra room seats is certainly better than enduring a sea voyage by sail. Amusement in our major cities could cost $500 to $1000 per week for people who want to go to professional sporting events, live theater, etc. Domestic servants have mostly been replaced by contractors, e.g., the housecleaners who come once per week or the people who deliver food from restaurants for those who don’t want to cook. Could we say that a family with two medical doctors earning a total of $400,000 per year was “comfortable and elegant”? If so, that’s a pre-tax ratio of 8:1 and a post-tax ratio of perhaps 6:1? Thus income inequality today is less than it was in Austen/Balzac’s time.

[Separately, of course, Austen’s upper class characters did not work so they had a lot more time to spend money and maybe that’s why they needed 20-30X the average income.]

[The preface might make you wonder why we have inflation today if we didn’t have it for most of human history. Piketty explains:

This world collapsed for good with World War I. To pay for this war of extraordinary violence and intensity, to pay for soldiers and for the ever more costly and sophisticated weapons they used, governments went deeply into debt. As early as August 1914, the principal belligerents ended the convertibility of their currency into gold. After the war, all countries resorted to one degree or another to the printing press to deal with their enormous public debts.

Between 1913 and 1950, inflation in France exceeded 13 percent per year (so that prices rose by a factor of 100), and inflation in Germany was 17 percent per year (so that prices rose by a factor of more than 300). In Britain and the United States, which suffered less damage and less political destabilization from the two wars, the rate of inflation was significantly lower: barely 3 percent per year in the period 1913–1950. Yet this still means that prices were multiplied by three, following two centuries in which prices had barely moved at all.

In addition to the question of relative prices, I will show that inflation per se—that is, a generalized increase of all prices—can also play a fundamental role in the dynamics of the wealth distribution. Indeed, it was essentially inflation that allowed the wealthy countries to get rid of the public debt they owed at the end of World War II. Inflation also led to various redistributions among social groups over the course of the twentieth century, often in a chaotic, uncontrolled manner. Conversely, the wealth-based society that flourished in the eighteenth and nineteenth centuries was inextricably linked to the very stable monetary conditions that persisted over this very long period.

]

What do readers think? Does a family today still need 20-30X the median income of $53,000 per year in order to be “comfortable and elegant”?

 

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I’ve started to read Capital in the Twenty-First Century, by Thomas Piketty. My iPad already feels heavier…

There is too much in this book to cover in one blog entry so I am going to save my readers the trouble of reading this massive tome with multiple postings.

Piketty says that Europeans and Americans have differing views on state ownership of industry and a planned economy because they had different growth rates during the heyday of government involvement in the economy:

Continental Europe and especially France have entertained considerable nostalgia for what the French call the Trente Glorieuses, the thirty years from the late 1940s to the late 1970s during which economic growth was unusually rapid.

In fact, when viewed in historical perspective, the thirty postwar years were the exceptional period, quite simply because Europe had fallen far behind the United States over the period 1914–1945 but rapidly caught up during the Trente Glorieuses. Once this catch-up was complete, Europe and the United States both stood at the global technological frontier and began to grow at the same relatively slow pace, …

In North America, there is no nostalgia for the postwar period, quite simply because the Trente Glorieuses never existed there: per capita output grew at roughly the same rate of 1.5–2 percent per year throughout the period 1820-2012.

These very different collective experiences of growth in the twentieth century largely explain why public opinion in different countries varies so widely in regard to commercial and financial globalization and indeed to capitalism in general. In continental Europe and especially France, people quite naturally continue to look on the first three postwar decades—a period of strong state intervention in the economy—as a period blessed with rapid growth, and many regard the liberalization of the economy that began around 1980 as the cause of a slowdown.

Do these political beliefs make sense? Piketty adopts the conventional attitude of a French academic, i.e., “most people are idiots”:

neither the economic liberalization that began around 1980 nor the state interventionism that began in 1945 deserves such praise or blame. France, Germany, and Japan would very likely have caught up with Britain and the United States following their collapse of 1914–1945 regardless of what policies they had adopted (I say this with only slight exaggeration). The most one can say is that state intervention did no harm.

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I just finished The Great Texas Wind Rush: How George Bush, Ann Richards, and a Bunch of Tinkerers Helped the Oil and Gas State Win the Race to Wind Power. The book is interesting because it shows what has to happen for wind power to work at all, e.g., someone needs to spend billions of dollars on transmission lines from where it is windy and people will tolerate noisy ugly windmills to where electricity consumers are most likely to live.

The author has a “nothing can happen without the government” attitude, which is substantially justified by the challenges of implementing wind power, e.g., forcing property owners to accept transmission lines across their land. The ability of consumers to respond to price signals is zero, in the author’s mind:

Americans, the most energy-guzzling people on earth, had finally figured out how to cut back. They bought more-fuel-efficient cars, under the government’s exhortations, and drove more slowly. They learned to turn off unnecessary lights. Some began buying more-energy-saving refrigerators, thanks to national appliance-efficiency requirements that came into effect in the 1980s.

The author suggests that the federal government is almost as useless as an individual American:

“The Department of Energy has a multibillion-dollar budget, in excess of $10 billion,” Reagan said in a debate with Carter in late October 1980. “It hasn’t produced a quart of oil or a lump of coal or anything else in the line of energy.” It certainly hadn’t produced much by way of wind energy, either. One of the oddities of the wind business is that the modern turbines of today are not descendants of the enormous experimental turbines that heavyweights like General Electric and Boeing and Alcoa and Westinghouse produced in the late 1970s, using millions of federal dollars. Those had experienced major technical problems and flopped.

Boeing struggled with dirt getting into hydraulic fluid. Alcoa, the aluminum giant, pulled out of the wind business soon after its solitary 500-kilowatt test turbine, shaped like a kitchen beater and erected in California’s San Gorgonio Pass, slung a blade at one of the wires holding it in place just a few hours after being turned on. Making matters worse, this occurred just before a high-profile wind conference featuring California governor Jerry Brown was due to convene. “I have some good news and some bad news,” Paul Vogsburgh of Alcoa announced to those assembled. “The bad news is that our wind turbine destroyed itself. The good news is that we did not have to evacuate Los Angeles.”

“It’s kind of strange,” says Vaughn Nelson, the retired director of the Alternative Energy Institute in Canyon. “The tract of development that led to the large megawatt machines today came from what we’d call the ground up of the small machines getting bigger [with] economies of scale, rather than starting with great big machines funded by government.

State governments, on the other hand, especially Texas, have managed to make things happen. Offshore wind in Texas has a much better chance of succeeding than in other states: “In a convenient quirk, Texas waters extend up to ten miles offshore, considerably farther than most states, due to historical reasons relating to how Texas joined the union. This means that developers like Schellstede had plenty of room to plant turbines without hitting federal waters and triggering a cascade of new rules. ”

Investment in wind power has been extremely risky. The author chronicles the IPO of Kenetech, a California wind turbine company: “Merrill Lynch foretold a hundredfold rise in Kenetech’s sales over three years.” They went bust a few years later. T. Boone Pickens plans the world’s largest wind farm:

A woman asked whether the giant windmills would make noise. “I’ve been a quail hunter since I was twelve, so my hearing isn’t worth a hoot,” Pickens told her. “If you’re getting royalties from it, it might have a real pleasant sound.” But the turbines have made no sound at all. Despite Pickens’s grand pronouncements, the Pampa wind project never got built, and in the corridors of wind conferences the mention of Pickens’s name soon brought snorts of irritation. A few months after his appearance at the Pampa auditorium, the price of natural gas began to plunge as the extent of the enormous new shale supplies became clear. As the price of gas fell it pulled the price of all forms of electricity down with it, and wind became less competitive. “When natural gas is $4.50 [per thousand cubic feet], it’s hard to finance a wind deal,” Pickens told the Texas Tribune in 2010, the same year he gave up the last of the leases on the Pampa land. “Natural gas has got to be $6.”

Do we really want this?

“Never in the history of the world have we put up 400-foot-tall blinking behemoths everywhere,” West Texas landowner Dale Rankin, who sued to stop the march of wind turbines over hillsides near his Abilene-area home, told the Austin-American Statesman in 2007. Living close to hundreds of turbines, Rankin said, is like being “next to an airport where the jets are running their engines all he time.” But in a state that welcomes development, Rankin’s lawsuit, the first significant one of its kind in Texas, failed in 2006.

And once we get it, will it free us from digging up fossil fuels and setting them on fire?

Indeed, on some windy nights when the blades are turning but electricity use is low, or when the grid is congested with lots of different plants offering power, parts of West Texas see “negative pricing,” in which wind plants pay a modest amount to offload their power (the federal production tax credit ensures it’s still worthwhile for them to do this).

When the wind does blow, it’s not necessarily at the most useful times, which makes Texas grid operators, even armed with constantly improving forecasting tools, wonder how much more wind they can handle without unbalancing their system. Sometimes things work out. In February 2011 wind farms all across Texas got praise for pumping large amounts of power into the electric grid during a deep freeze that managed to knock out a quarter of the state’s coal and gas power-plant units and caused rolling blackouts throughout the grid, even though a few turbines did go offline due to dangerously high winds and hydraulic-equipment freezes. But three years earlier, when a cold front moved through Texas and the winds died, the Texas grid operator, ERCOT, barely averted blackouts. (The wind industry says the cold front was predicted and the grid should have been prepared for it.) And on at least one scorching August afternoon in 2011, wind farms produced only about 1.3 percent of the grid’s electricty, prompting the National Review to run a piece headlined “Texas Wind Energy Fails Again,”

I recommend this book for software engineers. It shows just how much money and patience you need to achieve an impact in the world of energy.

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While on this trip to San Francisco I ran into a “talent management” consultant.

I asked What is that? “We help companies figure out how to recruit and retain employees.”

How much do companies pay for his services? “Certainly hundreds of thousands of dollars would be the minimum engagement.”

Why would they pay that much when there are 15 million unemployed Americans presumably eager for jobs? “If there is a talented person among those 15 million then my clients haven’t found him or her.”

[Separately, the Wikipedia article notes that this field was created by McKinsey in 1997, i.e., right about the time that Enron was organizing all of its incentive structures according to McKinsey advice (Guardian).]

What kinds of companies are most interested in talent management? “We get a lot of technology companies. They have tremendous trouble with retention. There is no loyalty in Silicon Valley. Companies are paying signing bonuses of $100,000 and more. Before making real money people used to have to work for years, wait for stock options to vest, and hope for a startup to succeed. Today there are engineers at big companies earning $1 million and more as straight salary and bonus.”

A Mountain View resident confirmed that non-managerial engineers could easily earn $400,000 per year at Google or Apple [a huge step up from the 1980s, when a top engineer might have earned the equivalent of about $140,000 in today’s dollars] but thought that $1 million was rare. Why weren’t more people studying engineering trying to get in on this? “You have to remember that the cost of living here is crazy high. A decent house is $2 million. You pay the highest tax rates in the U.S., outside of New York City. There are very few women who want to hang around in the Valley longer than necessary to get pregnant and collect child support. You’ll be working and/or commuting through horrible traffic 60-80 hours a week, mailing child support checks to an address in Santa Cruz or Napa, then going home to your lonely single guy apartment.”

[Fact check from the Web:

• Zillow says the median home value in Palo Alto is $1.8 million ($1118/square foot; the median includes condos). A single-family home in Mountain View, on the other hand, has a median price of $1.35 million.
• See the San Jose Mercury News for some traffic data.
• According to https://www.cse.ca.gov/ChildSupport/cse/guidelineCalculator , a one-night encounter with a Silicon Valley engineer earning $400,000 per year and paying a mortgage on that “decent house” would yield tax-free child support of about $43,000 per year ($777,600 over 18 years). This is roughly the after-tax median household income for Californians ($61,400 pre-tax according to the Census Bureau, fed into the ADP calculator) and could be doubled or tripled by having additional children with additional engineers.
• This article talks about working hours at Apple.

]

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I am friendly with some children (centered around age 10) whose parents are in poor health and at least one of whom probably won’t survive until the children are college age. I would like to give these kids some money but I am concerned that if I did it will simply be taken away from them roughly 1:1 by their college in the form of reduced financial aid.

This Yale article says that “Student assets are assessed in the financial aid formula at a much higher 20 percent rate…” Does that mean that over a four-year period, 80 percent of a child’s savings will be taken by the college in the form of reduced financial aid? So a child who takes my money and spends it all on a gap year Burning Man pavilion will come out, after college, almost even with a child who saves the money until freshman year?

This article on grandparent-owned 529 accounts implies that funds in a 529 account owned by a non-relative would be safe if not tapped until senior year.

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During the reign of King Bush II, I wrote about the proposed $400 million new presidential helicopter (March 2008 posting), a pimped-out variant of the standard EH101 that Wikipedia says costs $21 million when customers buy it from Eurocopter/Airbus instead of from Lockheed Martin. It seems that under Barack Obama, the government and its contractors have become more efficient. The new Marine One helicopter will be a tweaked Sikorsky S-92, which have a list price of around $30 million each when they are bought by companies that need to fly out to oil rigs. This press release says that the federal government will get four pimped-out S-92s for only about $300 million each, with options to buy 17 more at an undisclosed (undetermined?) price. The Wikipedia page on the VXX program says that about $1.7 billion was spent on the old plan before it was scrapped and that the projected costs of the old program doubled before it was canceled.

Related: my 2009 offer to pay personally for all presidential helicopter transport, saving the taxpayers about $1 billion per year.

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Check out these photos from the Montgomery Ward 1960 Fall and Winter catalog. Here are some things that I found interesting:

• nothing could be more wholesome for a mass market retailer than a father and son going out to kill birds with a pair of shotguns (there was no suggestion of mom and sister joining!)
• as part of its full-service ethos, the store would loan you whatever tools you needed to do a home repair/install job
• sales tax in New York City was 3% (today: 8.875%), in Connecticut 3% (today: 6.35%), in Rhode Island 3% (today: 7%)…
• a subset of the functions of a modern mobile phone could be obtained at the following costs:
  • Rolleiflex still camera (uses “popular 127 film“): $68.50
  • Movie camera: $100
  • Movie projector: $100
  • Smith-Corona portable typewriter (only 21 lbs!): $119.50
  • Audio recorder (open-reel): $280
  • Portable television (“so light” at only 33 lbs.): $158

(total: $826 or $6594 in 2014 dollars)

• bathing oneself in ultra-violet light was considered “healthful”
• a person over 35 was considered “geriatric”
• you could order a 10×40′ steel building kit for $383

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I rented a Chevrolet Impala in Orlando last week. Orlando would seem to be one of the best places on Earth for radio reception, with the largest hill being about 10′ taller than the surrounding terrain. The car came with an HD radio. When I would tune in a station, the radio would display “Acquiring HD signal” and then sometimes switch to the same sound but at a different volume level. An HD-only station, 90.7 HD-2 classical, would cut in and out for no apparent reason. It was basically impractical. Is there something particular about Orlando or the Chevrolet that makes HD radio more challenging? Or is it broken everywhere and for everyone?

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For one more month the National Gallery is showing Garry Winogrand’s photos (exhibit home page).

Given that Winogrand worked with handheld 35mm black and white, why not simply look at the excellent books that are out there? The show does offer some interesting additional material. Probably the most significant extra is a video of Winogrand answering questions from students at Rice University (see it by following a link from the above exhibit home page). Winogrand talks about how he learned from doing, not from being taught.

If you know someone who is considering marrying a photographer and relying on that person’s income, the letter from Judy Teller on display may be a welcome caution. It seems that Teller was married to Winogrand in 1967 and divorced in 1969. In the letter, a demand for post-divorce cash, she complains of his grandiose ideas of the success that was always just around the corner. She notes that the culture at the time required a man to support his ex-wife, in particular because he had caused her to waste her prime child-bearing years (she was 28 years old at the time and did not have any children).

The exhibit shows a Guggenheim application where Winogrand explains what he wants to do (transcription here). The application is roughly 50 years old and it is interesting to see that what Winogrand thought was a crisis turned out to be a lifestyle to which Americans had no trouble adapting. (“Since World War II we have seen the spread of affluence, the move to the suburbs and the spreading of them, the massive shopping centers to serve them, cars for to and from. … Our aspirations and successes have been cheap and petty. I read the newspapers, the columnists, some books, and I look at some magazines (our press). They all deal in illusions and fantasies. I can only conclude that we have lost ourselves, …”

Related: my own street photography article.

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