Monday, November 29, 2010

Memo to Stanford Faculty and Administration re: Harbaugh

Stanford University clings to the principle of excellence.  When it hires a full professor, that individual is reckoned to be in the top three in his/her field.  Admission to Stanford is highly competitive, with one in thirteen applicants admitted to the freshman class.  Stanford routinely wins more NCAA championships than any other university despite its relatively small undergraduate student body.

Except in football!

I’ve been watching Stanford football since 1971.  This year’s team is the best I’ve seen, compiling the most wins in Stanford history.  Coach Jim Harbaugh is probably the most coveted coach in the nation for college and pro teams looking for new leadership.  He is likely to receive several multi-million dollar offers to leave Stanford and take up a new head coaching position.

When a professor receives an offer from another university, Stanford usually tries to match or beat that offer.  Stanford tries to attract the best students by matching or exceeding financial offers they receive from other schools.

But Stanford does not treat its football coach the same way.  Paying millions to a football coach, even one of the top three in the country, is not in keeping with Stanford’s educational values, even though Stanford football competes against top national programs.  Don’t the players deserve the same first-rate instruction in football that students receive in the classroom?

Why this departure from excellence?  I suspect it is faculty jealousy over highly-paid athletic coaches at an Ivy League quality academic institution.  Harvard, Yale, and Princeton do not pay their coaches seven-figure salaries, but neither do their football teams play national powers.

I have little doubt that John Arrillaga would happily pick up whatever cost it would take to keep Harbaugh at Stanford.  Barring a change in policy, Stanford is not likely to try to match or beat a multi-million dollar offer.   Too bad.  Maybe the students can start a petition drive to help keep him.

Tuesday, November 23, 2010

TSA Tomorrow

The Fourth Amendment to the U.S. Constitution is quite clear in its language, at least to me. Perhaps litigation will halt or modify TSA search procedures currently in place at airports (Nov. 23, 2010). Perhaps not.

If not, it’s only a matter of time until an attempted or successful terrorist incident in a crowded venue that would have, or in fact, killed and injured large numbers of Americans leads to extending airport search procedures.

Possible venues include train stations, bus stations, harbors, shopping malls, office buildings, stadiums, theaters, universities, and other places of congregation. Think it can’t happen because of enforcement costs and inconvenience. Who would have imagined current pat-down procedures just a few short years ago?

Assaults on the Bill of Rights are standard fare in American politics and jurisprudence. A change in one vote could vitiate the Second Amendment. The Fourth is currently under challenge. The Ninth and Tenth have been whittled down in scope. McCain-Feingold, upheld by the Supreme Court, eroded a measure of free speech.

Friday, November 19, 2010

Bernanke Speaks Out: High U.S. Unemployment Is Not My Fault

It’s China’s fault.  So said Fed Chairman Ben Bernanke in a speech in Frankfurt on November 19, 2010.  The failure of China to allow its currency to appreciate more rapidly is the reason for global economic imbalances and high U.S. unemployment.

No more Mr. Nice Guy.  In defense of the Fed’s announced $600 billion quantitative easing to stimulate growth and job creation in the U.S., Bernanke also accused Congress of failing to do its part.  He said that Congress needs to adopt growth-enhancing short-run measures as it also lays out a path of long-run deficit reduction.  It would appear that Bernanke cares little if Congress refuses him another term as Fed chairman or demands his resignation.  Nor does he display any knowledge of China.

China is an old, proud civilization.  Having emerged from the humiliation of Western intrusion and occupation of Chinese territory, having endured the madness of the Cultural Revolution, having achieved the greatest economic progress in world history in the past 30 years, and having bought more than a trillion dollars of U.S. government securities and other real and financial assets, China is in no mood to kowtow to Bernanke.

It’s not too late for Ben, but he needs to take an intensive immersion course in Chinese culture and history. I suggest he begin with the Analects of Confucius, followed with a crash course on Chinese history.  He should then invite Chinese officials to instruct him on why China’s economy has performed so well since 1981, despite China’s reluctance to follow the guidance of Western professors who typically visit China for two weeks, diagnose its problems, and warn of a serious crash unless China does A, B, and C based on the professors’ models.

Doing so requires a certain measure of humility.  This may be difficult given the reputation that Fed chairmen have developed over the years as the most important figure in the global economy.

Thursday, November 18, 2010

Will India Surpass China?

Not anytime soon.

A growing number of commentators are pushing the argument that India will overtake China in the coming years.  Their belief rests on the fact that India is a democracy, that its system of government is better suited to coping with the ups and downs of economic dislocation and political unrest.  Although China currently outproduces India, they posit that China’s authoritarian system is more fragile and that China’s economy is due for a serious crash.

One suspects that the pro-India crowd is guided by ideology.  Here are a few 2009 statistics to consider.

China exports, $1,294 billion.  (China population, 1.3 billion)
India exports, $177 billion (13.7% of China).  (India population, 1 billion)
Shenzhen exports, $162 billion. (Shenzhen population, 10 million)

Two more comparisons:

Taiwan’s exports, $203 billion.  (Taiwan population, 23 million)
Malaysia’s exports, $158 billion.  (Malaysia population, 28 million)

China leads India, by large margins, in almost every category of economic activity.

In 2010, for the first time, more Chinese than Indian students are enrolled in U.S. universities.

Democracy is preferable to authoritarian rule in many respects, but facts are facts.

(Source: For exports, CIA Factbook.)

Wednesday, November 17, 2010

Confused About Fed Policy?

On November 15, 2010, Republican-oriented think tank e21 published an open letter to Federal Reserve Board Chairman Ben Bernanke, urging him to discontinue the Fed’s announced $600 billion large-scale asset purchase program (known as quantitative easing, QE II, or, more colloquially, printing money).  The 23 signatories included economists or economic historians Michael J. Boskin, Charles W. Calomaris, Niall Ferguson, Kevin A. Hassett, Douglas Holtz-Eakin, Ronald I. McKinnon, John B. Taylor, and Peter J. Wallison.  International criticism has come from Germany’s finance minister and heads of the central banks of China and Brazil.

Supporters of Bernanke’s purchase program include economists Paul Krugman, Alan Blinder, Tyler Cowen, Greg Mankiw, Scott Sumner, and Brad DeLong.  New York Fed president William Dudley and Bank of Israel head Stanley Fischer, Bernanke’s dissertation supervisor, have voiced their support.

Those on both sides include distinguished professors at prestigious universities, with equal IQ and knowledge of economic models and data sources.  Yet, two groups propose opposite policies.

Given the stakes, it would be nice to know who is right and who is wrong, or at least who is more right than wrong.  Maybe consult the Oracle at Delphi?  A duel at 20 paces?  Some form of majority vote among professors and business economists?  Draw straws?  An intrade contract?  A tag-team wrestling match?  These sound facetious, but there seems to be no objective economic standard by which to decide.

Monday, November 15, 2010

What Some Chinese Are Doing With All Their Dollars

Mainland Chinese, with the fourth-largest number of high net-worth individuals in the world and growing rapidly, are stepping up their purchases of residential properties in major urban markets.

(HT:  Barry Ritholtz, The Big Picture)

The Mortgage Interest Deduction Brouhaha

On November 10, 2010, Erskine Bowles and Alan Simpson, chairmen of President Obama’s deficit reduction commission, presented suggestions for spending cuts and tax increases to the 18 member group.

Several personal income tax changes were included in the package.  One proposed eliminating all current deductions in exchange for sharply lower rates.  The two biggest are the home mortgage deduction (the subject of this post) and employer provided health insurance.

The IRS has released its preliminary report on personal income tax returns for 2008.  About 140 million individual tax returns were filed in 2008.  (All numbers are rounded off for ease of reading.)  Of these, 92 million (66%) took the standard deduction, totaling $699 billion.  The remaining 38.5 million (34%) took MID of $462.5 billion.

Tax filers with adjusted gross income (AGI) over $200,000 constituted 9.7% of all returns, yet took 46.6% of all MID.  The size of the average deduction increased with each higher income bracket.  Filers with AGI of $100,000-200,000 took an average MID of $13,900.  Those with AGI of $1-1.5 million took an average of $32,000.  Those between $5-10 million AGI took an average of $37,000.

The benefit of the MID depends on the filer’s tax rate. Those in the $100,000-200,000 bracket pay a marginal rate of 25-28%, which means that each MID dollars saves 25-28 cents in taxes..  Those over $374,000 pay a marginal rate of 35%, saving 35 cents on each dollar.  For the 18 million filers with AGI under $75,000, most save 15 cents of each MID dollar because their tax marginal tax rate is 15%.

Back of the envelope calculations of tax savings (MID times tax rate) indicate that the top 10% of filers received about 60% of MID tax benefits.

As previously blogged, the home ownership rate in the U.S. is below that in many Western countries without a MID.  Eliminating the mortgage interest deduction (MID) in exchange for lower [a flat] tax rates makes sense.

Another interesting post on this subject can be read here.

Sunday, November 14, 2010

Currency Wars: China vs. U.S.

The greenback is in for the fight of its life.

(HT:  Economicrot)

CFBC: China Makes it Faster, Better, Cheaper

You have doubts?  Watch this time-lapse video.  Chinese construction workers build 15-story hotel in just six days.  (HT:  Mark Perry, Carpe Diem)

Sunday, November 7, 2010

Mao Zedong and Rick Santelli

After several decades of writing and fighting, Mao Zedong led his Chinese Communist party and army to take over China in 1949.  Among his important early papers, published in 1930, is “A Single Spark Can Start a Prairie Fire.”

Similarly, Rick Santelli may have earned his place in history with his famous rant on CNBC.  The Tea Party has honored him accordingly.

"Tea Party Patriots wishes to extend a special thank you to Rick Santelli for his rant on February 19, 2009, which started this entire movement. Without Rick’s rant, this movement would never have started. Many others will try to take credit but don’t be fooled. He was the spark that began this fire."

Mao and Santelli, an unlikely duo.  One for socialism, the other for liberty.