Philip Greenspun’s Weblog

If you’ve wondered how so many unionized Massachusetts state employees manage to earn over $200,000 per year (plus pension and other benefits worth at least another $100,000), this Boston Herald story provides a small clue. As a 2011 gift to taxpayers, Deval Patrick and our one-party Legislature decided to force cities and towns in Massachusetts to keep offices open and “appropriately staffed” on Evacuation Day and Bunker Hill Day, two holidays not recognized anywhere else in the United States. Meanwhile, union agreements require the government to pay the workers double-time.

[Background: Visit http://www.boston.com/news/local/massachusetts/specials/2010_state_salaries/ and select “department of state police” (and no other options), for example, to see the difference between nominal and actual cash compensation; note that the system is restricted to just those civil servants who earned more than $100,000 per year (the median wage in Massachusetts is about $18/hour or $36,000 per year (source)). Remember that pensions are based not on the nominal salary, but on actual compensation during an employee’s last few years of work. So a Massachusetts worker whose “salary” is $75,000 per year can easily get a pension, starting at age 45, of more than $100,000 per year. The retiree also gets state-paid health insurance whose current funding shortfall will cost the average Boston family about $100,000 (source) in addition to whatever level of taxation the family is currently paying.]

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http://www.nytimes.com/2011/02/14/opinion/14Salmon.html says that the Securities and Exchange Commission’s regulations for public companies are so onerous that all of the real investment is happening in the private equity world:

“Only the biggest and oldest companies are happy being listed on public markets today. As a result, the stock market as a whole increasingly fails to reflect the vibrancy and heterogeneity of the broader economy. To invest in younger, smaller companies, you increasingly need to be a member of the ultra-rich elite.”

An interesting statistic is that the number of U.S. public companies is down from a 1997 peak of 7000 to just 4000 today. That’s impossible to argue with, but perhaps the author is wrong about the reason.

The S.E.C. certainly is a rich source of annoyance for public companies, forcing them to file a lot of paperwork and making the CEO sign a statement that he is only looting as much as the buried disclosures say he is. But isn’t it possible that it is investors who are shying away from the public markets? The S.E.C. regulations don’t stop employees from looting from investors by issuing themselves enough options to dilute the cash investors by 30 or 50 percent (I wrote about this is my economic recovery plan). Nor do the S.E.C. regulations stop employees from repricing those options whenever the stock falls (so an executive whose job was to push the stock price from 50 up to 100 gets the options repriced at 20 after the stock falls due to some ill-advised decisions).

Let’s look at Robert Nardelli, named by CNBC as one of the “Worst American CEOs of All Time”. He received a mostly-unconditional $500 million in salary for trashing Home Depot and leaving its shareholders with a worn-out shell. At Chrysler, however, under the thumb of the private equity owners, Nardelli earned only $1/year and anything additional was to be based on the company’s success (Nardelli joined Chrysler in August 2007; the company went bankrupt in April 2009 (Home Depot paid $210 million just to get rid of Nardelli; you’d think that Chrysler would have handed him at least a few million of the taxpayer dollars that the Obama Administration gave them, but press reports suggest otherwise)).

Perhaps the Russians who are financing Facebook are too savvy to subject themselves to the depredations of U.S. public company executives. If companies aren’t going public, couldn’t it be because they can’t get the money that they need through an IPO? That the folks with the big dollars prefer to keep a closer eye on their money than is practical in the U.S. public market?

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I looked at today’s New York Times and saw stories about Egypt’s Hosni Mubarak, refusing to step down in the face of protests, and New York Representative Christopher Lee, resigning in disgrace after emailing a shirtless photo of himself to a hot 34-year-old “government employee” (plenty of time for sex when you have to work only 15 hours/week!). It then occurred to me that perhaps this is the way angry citizens will get rid of unwanted politicians: Photoshop a shirtless image of the hated leader and then distribute to folks advertising in the personals section of Craigslist.

As U.S. politicians are mostly older and not very computer-savvy and the people whose future income they are spending are young and often very able digital photo editors, perhaps those who aren’t able to vote will finally have a way to fight back against state and federal legislators who, through unfunded public employee pension commitments or explicit borrowing, are squandering what might have been their future wealth.

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I have drafted a brief review of the book Dreaming in Chinese and would appreciate comments/corrections.

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This is a one-year follow-up on my review of the book I.O.U. The author made or implied the following predictions:

• Canada would do well
• France and Germany would do reasonably well, due to their sensible financial systems and Germany’s focus on manufacturing
• Britain would be a disaster, with at least a shrinkage of 600,000 government workers and maybe a decade of pain

Here’s the section under the headline “Britain is doomed”:

Page 217: “Britain has half of the total European credit card debt. … We are all about to feel significantly poorer. That’s because we’re about to get the bill. … the recovery everyone is longing for is the point when we will get the bill. It’s when we recover that we will start to pay back the cost of what happened. Governments can’t begin to fix the holes in their own balance sheets–holes which get rapidly worse as tax revenues collapse and spending vooms upward–until the economy is growing again.”

Lanchester explains that the government budget problem is compounded by the fact that “the average British household owes 160 percent of its annual income.” He predicts that British government payrolls will shrink by at least the 600,000 workers that the government has added in the “last few years” (a government that shrinks in size is almost unprecedented in modern history and Lanchester does not cite any examples).

How are Lanchester’s predictions working out, a year later (probably closer to two years later from his point of view)?

Canada is growing steadily with about 7 percent unemployment (these are the easy numbers to find, but also easy for governments to cook; I would prefer to know the percentage of working-age Canadians who are employed)

France seems to be doing okay. Germany grew 3.6 percent in 2010 and the German unemployment rate is lower than at any time since 1990 (source).

The United Kingdom is doing comparatively poor, much as Lanchester predicted, with a GDP 1.7 percent higher at the end of 2010 compared to 2009 (source) and the unprecedented government shrinkage that Lanchester forecast indeed came to pass, with cuts of “almost half a million jobs” (source) planned.

Lanchester is a novelist, but his predictions seem to have worked out better than most economists’!

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Folks: I’ve drafted a book review of James Wolfensohn’s autobiography, A Global Life, and would appreciate comments/corrections.

Thanks in advance.

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Here’s an interesting graphic from The Atlantic attempting to show how the U.S. changed between December 2007 and June 2009.

At first I thought that the graphics were going to communicate much more than the raw numbers, but as I looked closer it occurred to me that the simple numbers are easier to read, e.g., “number of federal employees grew 13.6 percent to 2.06 million”. How does having two bars and a pyramid (lower center) make this clearer? The graphics would be useful if they helped one compare the numbers to each other or to additional numbers, but each mini-graphic stands alone and often is not comparable to anything else nearby.

What do folks think about this attempt at graphical communication?

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I was reading my favorite intellectual journal the other day, i.e., Delta Sky magazine (free in every seatback pocket), and chanced upon an editorial by Richard Anderson, the CEO of Delta. Anderson notes that “average price of your ticket (adjusted for inflation) today costs about half of what it did prior to deregulation.” Considering that the airlines are plagued by unions and high oil prices, this is either an impressive tribute to the brilliance of managers such as Anderson or evidence of spectacular inefficiency during the regulated years.

With the massive increase in passengers going through airports and the increase in the average size of an airplane, you’d think that the cost of getting a passenger through an airport would have gone down. Anderson says it isn’t so: “Since the 1970s, the taxes and fees airline customers must pay has nearly tripled, and Congress again is proposing an increase in passenger facility charges from the current $4.50 to $7 per flight segment. This increase means airline customers would pay an additional $2 billion in taxes per year–an average of $112 per trip for a family of four.”

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As a shareholder in U.S. public companies, mostly through Vanguard index funds, I usually find myself asking “Why am I paying a manager $50 million per year to earn an average (or below average) return on investment? Couldn’t they have found someone mediocre for $1 million/year and given us the $49 million remainder as a dividend?”

The news about Ford making a fat profit for 2010, however, prompts me to issue a public thank-you to all of their workers.

What makes Ford special? The U.S. government handed out nearly $100 billion in tax dollars to Ford’s competitors. How many enterprises could survive this? I don’t think our helicopter school could survive if the place across the hall were given $100 billion.

So.. from a shareholder: thanks, guys and gals!

[To forestall comments that would take away from the spirit of the thank-you: yes, I am aware that Ford had some help from the spectacular incompetence of the management at Chrysler (e.g., http://en.wikipedia.org/wiki/Robert_Nardelli , paid $500 million by Home Depot shareholders while the company stagnated, then he moved over to dig a deeper hole for Chrysler) and GM (see this September 2009 post about the pensions that GM managers agreed to provide). However, I don’t think that should stop shareholders from thanking the Ford team.]

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Teaching our three-day intensive course in RDBMS and SQL development at MIT made me reflect on the wisdom of the government using tax dollars to pay people for 99 weeks (two years!) to stay home and play Xbox or watch TV while waiting for employers to return their calls. The standard 26 weeks of unemployment makes sense to me. People paid for the insurance with wage deductions and it might take 26 weeks to move to a new city or state, work one’s network of friends and relatives, etc. But the subsequent 1.5 years don’t make sense to me given what a human ought to be able to learn in that period of time.

In three days we took people, admittedly many of them very bright, from zero knowledge of RDBMS to basic competency in SQL programming. They were also able to modify, recompile, and test Android applications that pull information from a Web-based RDBMS. Many of the students had very limited programming experience and many were not MIT-affiliated, so it is not as though we took MIT computer nerds and made them slightly more nerdy.

Let’s try to come up a list of things that a person, effectively taught, could do in 99 weeks. Here’s a start:

• earn most or all of a bachelor’s degree if done at an efficient school such as University of Phoenix where courses are self-paced and/or in session all year rather than the lazy half-the-year calendar of a legacy university
• earn an MBA (1 year at a modern school; 2 years at a legacy school)
• become a competent video editor in Final Cut or Adobe Premiere (two weeks?)
• become a competent photo editor in Adobe Photoshop or The Gimp (two weeks?)
• develop reasonably fluency in a foreign language, even without an instructor, using tools such as RosettaStone (one year, possibly including a trip to Guatemala or China or wherever)
• start and finish an aviation maintenance degree and FAA certification (typically about 1.5 years)
• learn heavy equipment operation
• complete almost any trade school, e.g., plumbing or electrician
• go from zero computer knowledge to being a Microsoft Certified Systems Engineer or a Cisco network engineer

It seems strange to pay someone for 99 weeks and hope that somehow the employers that didn’t want them when they were fresh out of work would somehow want them after two years of idleness.

What about the following modifications to the system:

• for people who live in states with an unemployment rate higher than average (see http://www.bls.gov/web/laus/laumstrk.htm for the rates), offer a lump sum at the end of 12 weeks to assist the person in moving to a state with a lower-than-average rate
• for people who’ve been unemployed for 12 weeks, simply pay for a year of education in programs with proven records of skills-building (I guess you measure by how many finished and were able to get jobs)

I have heard that there are various government training subsidies available, but none seem to be as well funded as the river of money that is going into the 99-weeks-of-Xbox system.

What’s wrong with my thinking? Is the 99-weeks-of-Xbox system that Congress created more sensible than it seems?

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