Coyote Blog

Announced today:

President Barack Obama on Wednesday imposed $500,000 caps on senior executive pay for the most distressed financial institutions receiving federal bailout money, saying Americans are upset with "executives being rewarded for failure."...

The pay cap would apply to all institutions that have negotiated agreements with the Treasury Department for "exceptional assistance." Those would include AIG, Bank of America and Citi.

Firms that want to pay executives above the $500,000 threshold would have to use stock that could not be sold or liquidated until they pay back the government funds.

I don't get too worked up about this one way or another.  Once the government is a part owner of these companies, it is perfectly reasonable to expect them to dabble with things like compensation policy, and no surprise that focus of such dabbling would fall on whatever particular hobby horses the party in power seem to obsess about.  Which is reason #4097 why government shouldn't be bailing these guys out.

In terms of executive compensation, options have fallen a bit out of favor as executives have sought more of a guaranteed payday, and changing accounting rules and more scrutiny have made that harder to do with options.  The concern is,  of course, stock prices can fall or even go to zero and that part of the compensation package would be worth zero.  Executives are generally happy to take risks but only with other people's money (people who take risks with their own money are called entrepreneurs).

But in this case, most of these companies' stock is at what is likely to be the bottom, and each has the commitment of the government now not to let them go bankrupt, so the danger of stock values going to zero is, well, about zero.   Would you take warrants in a company priced at the market trough and with the US government guaranteeing the floor beneath you?   I can't think of a better time to get equity or option-based compensation, and so expect to see a lot of it in order to circumvent the $500,000 limit.  And a lot of big paydays 5-7 years hence.

A while back, when I discussed the stagnating wage myth, I observed that folks spreading this meme were careful to show figures only for cash wages, and not for total compensation.  In the period from 2000-2006, which is the typical period critics focus on (in part because it implies blame on the Bush administration, and in part because it lets them measure economic peak to trough) there has been a substantial shift in compensation mix from cash to non-cash benefits, including health care and paid time off.  Ignoring these components is particularly disingenuous given that many of these same critics have been long-time supporters of more paid time off and better company-funded health care.

As an example, this data (courtesy of Mark Perry) on the Big 3 automakers contracts is telling.  In 2000 (table page 3) it shows cash wages per hour worked at $22.71 and total comp at $43.57.  In 2006, the most recent year of data, it shows cash wages per hour worked at $29.15 and total comp at $75.86.  So, while cash wages per hour have increased about 4.25% compounded each year, total compensation has increased more than twice as fast, at 9.7% a year.  That latter increase is due both to a rapid rise in health care expenditures for employees as well as an increase in paid day off to 34.5 a year.  (by the way, if you are wondering why the UAW is fighting so hard for a government bailout, look no further than jobs with $75.86 an hour total comp. and seven weeks a year of paid days off.)

The media is really bending over backwards to find ways to twist earnings data for average Americans to try to make the point that real income for many folks has stagnated or dropped.  They are doing this to support a two-pronged legislative strategy in the next Obama administration:

1. Use the power of the government to further tilt the balance towards unions and against employers in wage negotiations  (this strategy having worked out so well to create prosperity in the automobile and airline industries)
2. Further modify the income and Social Security tax structures to make them even more regressive than they are today.

They are firing on all cylinders behind this strategy.  They are even mobilizing the neo-Keynesians to make the pitch that the Great Depression and the current financial crisis were caused by a shift in wealth from laborers to the capital classes, and that the only way to prevent future crises and depressions is to, wait for it, increase the power of unions and institute more wealth redistribution  (Example here, via Kevin Drum).

I was going to do a post fisking the James Livingston article linked above on Kevin Drum's site, but Livingston's hypothesis was such a mess that it was just going to take too much of my day.  But in doing some research, I found this chart from a couple of years ago in the NY Times that really caught my attention:

Talk about chutzpuh -- look at the lede on the chart and then look at the chart itself.  Yes, the lede is correct, but only if you choose the totally meaningless number of "cash wages" rather than total compensation.  If one looks at total compensation (or what they call "overall" compensation), the entire argument falls apart.   Workers have maintained about their same "share" of the economy.

Sure, a large percentage of that is now in health care benefits, but that's a choice workers have made (and the government has encouraged through tax policy).  In fact, this compensation mix has been driven in large part by the Left's beloved unions, so on what basis can folks say that these other benefits somehow "don't count?"  Certainly, they cost their employers equally, whether it is cash or health care.  Corporate profits are up a bit, but in line with their normal historical levels in the 1950s and 1960s, the golden age of the US economy, according to the Left.  (By the way, the pattern of falling wage shares and rising profit shares after recessions is a well-documented one.  Wage-earners do best at the end of an economic cycle, employers more towards the beginning.  The chart cut off after 1997 would look about the same as the last several years).

I will tell you right now that every time you hear someone bemoaning the stagnation of wages, they will never, ever, ever be talking about total compensation per individual.  Having, through government policy and union activity pushed the compensation mix to non-cash elements, they then play a heads-I-win-tails-you-lose game of not giving any credit for those compensation elements.

Other games that are played to try to make the case that real earnings have stagnated include:

• Time frame selection. Everyone making this argument will choose 2000 as a starting point.  They justify it by saying it is the beginning of the Bush years, but 2000 is really selected because it is a pre-recession peak, and they have to measure peak-to-trough of the economic cycle to try to make their point.  Just as an example, if you look at the household income numbers below, you can see there is very typically a 5-year drop after a recession followed by net gains.  If we chose, say, the first Clinton term we could play the same game, showing a peak-to-trough drop in real incomes.
• Household income game. The household income numbers are fraught with peril, because companies don't pay households, they pay individuals.  And household makeups are changing simultaneous to income changes.  For example, imagine the economy was just my household.  If my wife were to get fed up with my shtick and divorce me tomorrow, average household income would drop by 50% in one day (as our total income stays the same but we go from one to two households).  If my wife were to go back to her high-paying pre-kids job tomorrow (if only it were so!) our household income would go way up, in part because the labor department does not capture the value of the labor she provides at home.Mark Perry has a lot more on the household income numbers here, but he shows that the household size number has been changing a lot, causing the metric to understate income changes per individual:

• Individuals matter. Median income looks at the middle person on the ranked list of US incomes.  So, for example, if there are 100 million income earners, the median income is the income of number 50 million on this list.  But whoever the person is at spot 50 million is almost certainly not the same person who was at spot 50 million last year.  They might have fallen on the list, but the odds are they moved up.  As folks age and gain experience and/or seniority, they tend to increase income faster than inflation.  Most minimum wage earners, for example, tend to be under 25.  The number of families supporting three kids on minimum wage (at least of the primary bread-winner) at the age of 45 is really, really low, despite the anecdotes we are bombarded with in the media.

• Immigration has a huge effect. The total number of foreign born people in the labor force is estimated around 21 million, of which perhaps 6.3 million are illegal immigrants.  Positing that at least 10 million of these arrived in the last two decades, and that many of these folks began at relatively low, below-median incomes, means that median incomes are hugely affected by immigration.  Leaving immigrants out so the comparison is close to apples and apples, to find the true median income gain over the last 20 years one would have to count up 10 million or so spots on the list.  Again, as in the previous point, most individuals can be better off even if the median stagnates  (presumably immigrants coming in at the bottom are also better off, even at the bottom, than where they were before, or they would not have come.  We often forget that much of our bottom quartile of income in this country would be upper middle class in many other nations).  This is a classic mix problem that most people, and the media, almost always get wrong.  In a situation with a changing mix of multiple groups, each of the groups can be improving on some metric, but the overall metric can go down.  You can see the income stats by race here.  Every race group has increasing median income, but since the Hispanic group has grown 8x faster than the anglo population in the US, the total results are mixed downwards.Here is a quick example.  Group A has values of 5,6,6,7.  Group B has values of 1,2,3.  Ten years later Group A is the same size and has values of 6,7,7,8.  Group B has doubled in size, and now has values of 2,3,4,2,3,4.  In these examples, every single individual has a higher value.  Also, Group A's median has increased from 6 to 7, and Group B's has increased from 2 to 3.  But the median for the whole combined group A+B has dropped from 5 to 4.  Both medians (and averages) can do funny things when mix is shifting.
• Even the NY Times. The NY Times actually makes two of these points for me in another article, arguing that historic median income drops were concentrated in areas of high immigration, and reported drops were due to the choice of the economic peak as a starting point.  WOW?  Is this the same NY Times I began this post criticizing.  Yes it is, the only difference is that this article ran in 2001, when they were reporting on the economy during a Democratic administration.
  
• Income taxes are already wildly progressive.  While I would love to be in that top 1% group, I don't really begrudge them their success.  Besides, who can look at the chart below, again from Mark Perry, and come to the conclusion that the top 1% are being treated unfairly generously.

• Every country that has implemented this plan (government-backed unions and wildly progressive tax policy), including most of Western Europe, is demonstrable worse off than the US on absolute measures.  This is both the median, but also in every quintile, including the poorest.  While it is true the poorest quintile has a bigger gap from the riches in the US vs. France for example, on an absolute basis our poorest are at least as well off  (particularly when differences in immigration policy are taken into account).

I guess it turns out that compensation deals between sophisticated, consenting adults at private firms are not actually subject to approval by the NY attorney general, no matter how much he grandstands:

A state appeals court on Tuesday dealt a devastating blow to the New
York attorney general's efforts to force ex-New York Stock Exchange
Chairman Richard Grasso to return a portion of his $187.5 million
compensation package.

New York Attorney General Andrew Cuomo's
spokesman issued a statement saying he is not pursuing an appeal in the
case. The Grasso case is "over" "¦ "for all intents and purposes," the
spokesman said.

In a 3-1 decision, the New York Supreme Court's
Appellate Division dismissed the two remaining causes of actions
against Mr. Grasso and one against former NYSE director Ken Langone

I wrote much more about this fiasco long ago...

Update:  The AG argues that their real concern was about pay practice in non-profits.  OK, I am sure there are any number of NGOs and museum presidents where there might be real issues with the sophistication of board members.  Go after those folks, then, but there was never, ever any evidence that somehow Dick Grasso pulled the wool over the eyes of financial neophytes on the NYSE Board, babes in the woods such as the CEOs of JP Morgan Chase and Goldman Sachs.  Unfortunately, all these other non-profits tend to be run by folks who are the backbone of the NY Democratic Party.  Even in the Grasso suit, Spitzer had to work a bit to avoid naming prominent Democrats as targets.  For example, there is a lot of evidence that the person most responsible on the NYSE baord for the structure of Dick Grasso's compensation contract was NYSE board member and former NY State Comptroller Carl McCall, but since he is a powerful Democrat, Spitzer did some slick judo to avoid including him in the suit, which still including other NYSE board members.

I just encountered an absolutely classic bit of government think.  Here is the background.

In Florida, on each night stay in the campgrounds we run in Marion County, we collect a 6% state sales tax, a 0.5% county sales tax, and a 2% tourist development tax, for a total of 8.5%.  Until this month, we reported and paid all three taxes to the state of Florida on one simple return.  The state then divvied the money up to the counties.  Apparently, this latter process could take up to 90 days before the County got their tourist development money.

The County commissioners of Marion County did not like waiting 90 days for their tourist development money.  Remember, this is not general revenue money, but supposedly trust fund money that must be spent on tourist advertising and the like.  Also, recognize that 90 days for a government body to disperse money is pretty normal - I find I often have to wait as long as 6 months to get a check out of the feds.

Anyway, the County wanted its money faster.  So it decided to collect the money itself.  First this involved more staff hours and designing a new online collection system, costs that are completely incremental because the state of Florida was performing these functions before (and still are performing them).  Today, it now requires two systems and clerical staffs to collect money that was once required by just one. 

Already, this seems like idiocy to any business person.  Is adding a whole new staff and systems really worth getting money 90 days faster?  I guess it is possible, but even if one could argue this point, we now get to the real government-think.  Because there is no way anyone in whatever cost-benefit trade-off they ran considered the time and effort that would be required of individual taxpayers.  Even in my small company, this will now require extra clerical labor each month as well as an initial system reprogramming to add the extra tax authority.  If one considers thousands of other businesses in the exact same position, the amount of investment is enormous.

But in my experience, when running cost-benefit trade-offs, the government never, ever considers investment and time required of the citizens who must comply.  I have seen governments make changes designed to save a few man-hours a month in their own clerical departments that cause thousands or millions of man-hours of extra work among taxpayers.   A year or two ago, Mono County, California forced us to go from one to twelve reports each month for our lodging tax payments just to save auditors a few hours work every three years.   And do you know why?  Because the government treats us all as serfs.  As far as they are concerned, our labor is free, because they have the power to compel us to do whatever they ask without compensation.

Postscript:  Here is my other Florida county tax collector pet peave.  All the tax collectors in Florida put their own personal name all over everything.  Their web site is not "marion county tax collector"  but "George Albright, Marion County Tax Collector." Their stationary has this man's name all over it.  When I right a check to them, I am supposed to include this man's name.  I hate this kind of public employee self-aggrandizement.  It is a blatant use of taxpayer money to try to aid one's next election chances, and it is a waste of money when a new person comes in office because every piece of printed material must be thrown out and reprinted.  This seems to be fairly unique to Florida.  Look at the Marion County links for other states in the same search and you don't see the same thing going on in those states.

Via Five Feet of Fury:

Richard "The Boy Named Sue" Warman has finally filed his statement of claim.

Canada's busiest litigant, serial "human rights" complainant and -- the guy Mark Steyn has called "Canada's most sensitive
man" -- Richard Warman is now suing his most vocal critics -- including me.

The suit names:

"¢    Ezra Levant (famous for his stirring YouTube video of his confrontation with the Canadian Human Rights
tribunal after he published the "Mohammed Cartoons")

"¢    FreeDominion.ca (Canada's answer to FreeRepublic.com)

"¢    Kate McMillan of SmallDeadAnimals.com

"¢    Jonathan Kay of the National Post daily newspaper and its in-house blog

"¢    and me, Kathy Shaidle of FiveFeetOfFury.com

Richard Warman used to work for the notorious Human Rights Commission, which runs the "kangaroo courts" who've charged Mark
Steyn with "flagrant Islamophobia."

Richard Warman has brought almost half these cases single-handledly, getting websites he doesn't like shut down, and making
tens of thousands of tax free dollars in "compensation" out of web site owners who can't afford to fight back or don't
even realize they can.

The province of British Columbia had to pass a special law to stop Richard Warman from suing libraries because they
carried books he didn't approve of.

Richard Warman also wants to ban international websites he doesn't like from being seen by Canadians.

The folks named in his new law suit are the very bloggers who have been most outspoken in their criticism of Warman's
methods.

She includes a paypal link to accept donations for their legal defense  (or is it defence in Canadian?)

People have been defaulting on mortgages for all of recorded history.  In Roman times, such a default could well result in the mortgage-holder getting sold into slavery, so things have improved a bit.  But seriously, people default on their mortgages all the time.  So what makes those currently in default more deserving of taxpayer aid than those before them or after them?  I mean, other than the fact that the press is paying attention to these particular defaults?  A similar question was reasonably asked of 9/11 victims who scored government compensation when victims before or after of other transportation accidents and building fires have not been so rewarded.

I challenge any politician to answer this question with an answer other than "well, these people are in the media spotlight right now and as a politician, I want to be in the spotlight with them."

Update: More analysis here, including the bright side of the burst housing bubble:

Countrywide wants to be
able to take its loans that the market won't accept and refi them under
FHA or FNMA. That's what this is all about. Don't forget that.

It's
not about homeownership. Let's look at the latest 25th percentile
(starter homes) list prices for a range of CA cities, compared to the
price in January 2007:

LA: $365,000/ $429,920
OC: $414,900/ $499,000
Riverside: $259,900/ $335,000
Sacramento: $229,900/ $316,477
San Diego: $325,000/ $392,279
San Francisco: $380,000/ $468,376
San Jose: $489,950/ $580,589
Santa Cruz: $489,000/ $577,400

What
you see above is great news for all the people who would like to buy
homes without going bankrupt a few years down the line. It's VERY bad
news for banks and financial companies that made the original bad loans
without bothering to check whether the borrowers could pay the danged
loan. You figure out who this country should reward - responsible
aspiring home owners or stupid banks.

TJIC has a great link to an article about a guy who doesn't want to grub around in the details, but wants a job to help a company see the big picture and move forward.  LOL.  I can't tell you how many times I get a request for that job.  People are always saying they want a job doing "business development**" or "coordination" or "performance reviews."  The common denominator when I ask people to explain to me what these jobs actually would do is that they involve driving around a lot to different recreation sites I run or might run and "checking things out."

I tell people there is no such job.  I tell them I don't have that job, and I own the company.   It's a TV-inspired view of business, like Dynasty or Dallas, where the protagonists run around and do all kinds of stuff that doesn't look like real work.

Yeah, I get to enjoy some perks now and do some cool stuff running my company.  But how did I get here?   Well, the whole story is too boring to tell, but here is one vignette:  In March of 2003 I spent about 6 straight 90-hour weeks trying to get my new company registered on the fly in 12 states and about 30 counties for tax withholding, sales tax, occupancy licenses, unemployment taxes, workers compensation, and even egg licenses just so I could use the assets I just purchased.  This was at the same time I was programming some add-ons to Quickbooks so the finances could be tracked and setting up some of our first web sites.  All while I tried to keep an unfamiliar company running.  And, oh yeah, while I was thinking all that big picture stuff.  Yes, I think about the big picture - and in fact, I have radically reshaped the positioning of this company over the past five years.  But that is what you do in the shower or on the stationary bike.

I don't explain all of this, of course, I just tell people that I don't have a big picture job to offer them.   TJIC, as usual, is a bit more direct:

Or, phrased another way: you're a useless drama queen who - instead of
compromising your principals and taking a job that doesn't match the
job title you want, and then growing the job position around your
abilities - you'd rather stay home and live off your wife's salary.

** The world's one great moment for such jobs was in the late 90's Internet craze, when every soon-to-be-on-FuckedCompany.com startup employed hordes of business development guys who ran around making grand press-release inducing deals that generated absolutely no money.  "Let's trade our proprietary online merchant services framework no one wants to buy for your proprietary online price management algorithm no one wants to buy.  OK, cool."  When I came into the waning stages of several such companies, the first thing I did was blow all these guys away, followed by a quick inventory of our soft and hard assets to see if we actually had anything anyone wanted to, you know, pay money for.  I still think the whole IT world is tainted by the memory of these glory days for produce-nothings.  Everyone wants to be Steve Jobs without having to actually first produce a salable new technology with their own hands in their garage.

The average federal worker now makes over twice the wages and benefits of the average private worker. 

Maybe they have some sort of incentive plan, receiving a percentage of the value they have personally destroyed.  Because sure as hell none of them are producing anything.  If the Democrats want to fight income inequality and take on excessive compensation that is set without oversight, I might suggest beginning with the federal government. 

Postscript: TJIC has pointed out that he and I, though we tend to agree, often express ourselves differently.  Here is my prediction of TJIC's response to this article:  "We going to need a lot more rope."  How's that, Travis?

Eliot Spitzer has been caught using the power of his office to go after his enemies.  Wow, what a surprise.  Frequent readers of this blog will know I don't think much of Spitzer, who tended to overreach his office all the way back to student government at Princeton.  What I found surprising, though, was this quote from the NY Times:

The report was a blow to Mr. Spitzer, a former prosecutor who came into
office less than seven months ago with a reputation for integrity and
who promised to bring a new ethical climate to Albany.

A reputation for integrity with whom?  Mr. Spitzer, as attorney general, was a sort of liberal bookend to George W. Bush, consistently exceeding the limits of his authority to achieve some goal he argued trumped a narrow reading of the law.  His supporters, just as Bush's do, justify his overreaching his office on the grounds that the ends justified the means, in Spitzer's case the assault on various corporate and Wall Street firms liberals were frustrated that Washington would not pursue.  Critics like myself argued that many of his crusades were abuses of his prosecutorial office to pursue personal vendetta's and to generate headlines to position himself for a run for governor.

I would think that any reasonable definition of "integrity" when applied to an attorney general would include a respect for the letter of the law, something that even his supporters would probably admit Spitzer cast aside when he thought it was for a good cause.  The only interpretation of "integrity" I can come up with in the context of this article is that Spitzer had integrity in the past because his abuses of power were in pursuit of causes the author agreed with.

Look, this is the man that began supporting campaign finance limitations, which tend to support incumbents, starting the day after he became an incumbent.  This is the man who described himself as governor thus:  "I
am a fucking steamroller and I'll roll over you or anybody else".  This is the man who involved the State of New York and the courts in a private compensation deal, just to burnish his populist credentials.  In the latter trial, he explicitly left prominent Democrats who had the most involvement with the deal alone and indicted side figures who were Republicans.  Tom Kirkendall has a much longer bill of particulars against Spitzer here.

The British government has apparently adopted something like Title IX for government pay, and just as Title IX predictably caused many mens sports to be canceled,  the results are about what you would predict (via overlawyered):

Hundreds of thousands of men working in the the public sector are facing
salary cuts of up to £15,000 a year as equal pay agreements take effect, The
Times has learnt.

Compensation claims for up to 1.5 million workers could cost the taxpayer more
than £10 billion and mean that male staff lose up to 40 per cent of their
salary.

LOL - who would have thought that the government would make everything equal by tearing down the top rather than building up the bottom?  Uh, well I did, just three posts ago.  I would love to see the list of what jobs were deemed "equivalent" by the "experts".   I wouldn't even know how to start such an analysis if someone paid me to do it, except maybe just to go find the market pay rate for each job.  But of course the market is excluded as a determinant of value by folks who write these laws, even though we use it for determining the value of, well, everything.  Even when the government tries to set values (e.g. by fixing prices), a black market always emerges trading at a more rational market price.

Prediction: the next story we see will be about "labor shortages" and the government having difficulty trying to hire certain positions.

For the lack of a better term, I will call large, old-line union dominated companies "Big Rust Belt."  These are companies that tend to have strong unions and that have compensation packages most new companies eschew (e.g. defined benefit rather than defined contribution pensions).  These companies tend to be experienced rent-seekers, and usually are beneficiaries of protectionist practices.  I generally lump the big 3 auto makers (and much of their supply chain) and integrated steel manufacturers in this description.  Other industries, like traditional airlines (e.g. United but not Southwest) also fit in this description.

Already over the past several years, Big Rust Belt has been getting bailouts of their defined-benefit pension plans.  Going forward, Big Rust Belt is looking for the government to bail them out of their health care obligations as well.  Big Rust Belt began offering health benefits as part of their compensation packages in WWII, when government wage freezes made it difficult to compete for labor, and offering health benefits was a way to evade the wage laws.  Health benefits grew in popularity at a time when it seemed reasonable that your employer might still be alive and employing you forty years from now, and because Congress and the IRS made these plans tax-preferred over cash compensation.  Short-sited corporate executives began offering retirement health care in labor negotiations as a way to reduce cash wage increases, on the theory that cash wages hurt the bottom line now while retiree benefits hit the bottom line, well, on someone else's watch.

Now these health benefits are an albatross around these corporations' collective necks.  Not only are they bankrupting them, but smaller companies who were not so dumb as to make these promises to their employees are out-competing them. 

So Big Rust Belt wants at least three things:

• It wants the government to force its smaller competitors to have to offer the same health insurance it was dumb enough to promise.
• It wants the government to take on a portion of its medical obligations, particularly for retirees
• It wants to government to by law limit the procedures it has to pay for (i.e. ration care), something they have been unable to do in their union negotiations.

And, surprise surprise, given that Big Rust Belt is even better at rent-seeking than it is in running its core businesses, state and federal governments look ready to deliver on all of these.  Each of these is a feature of the governator's new plan, and all are features of various Hillarycare models discussed by Democrats in Congress.  So no one should be surprised when GM CEO Robert Lutz says:

he expects the new Democratic-controlled Congress will be more understanding on health care issues

"More understanding" means "more ready to bail Lutz and GM out of there business problems."  And remember that for Big Rust Belt, universal health care does not mean "great, now everyone can have health care";  it means "great, now we don't have to bother competing with any companies who are smarter about how they have compensated their employees."

Update:  More Big Rust Belt rent-seeking here.

Prior to the election, folks on the left were pushing the idea that US wages had been stagnating.  Often this argument was a subset of a zero-sum class warfare rant, complaining that though the economy has grown, the "rich" have taken all the gains.

There were always two problems with the hypothesis that real wages were stagnating:

1. "Wages" are only a part of total compensation.  In fact, I don't think anyone denies that real compensation (wages plus benefits) has been growing, and it would not surprise me that non-wage compensation, like health care, has grown much faster than wages.  A discussion about only one component of total compensation is nearly irrelevant.
2. Even if the average is stagnating, that does not mean that the wages for individuals is stagnating.  What is actually going on is that everyone's real wages are improving, but new low-skill low-wage immigrants and teenagers move in behind them and bring the average down.  If you showed real wages for people who were in the work force in 1980 without any entrants after that, average wages would be way up.  The average is less important, from a general well-being standpoint, than what is happening to individuals.

The New York Sun (Hat tip: Most all the libertarian blogosphere) that also takes on these issues.  The author makes the further distinction between individual and family income, and argues you also need to correct for changing family sizes.

The American family has
shrunk due to changes in society, such as more divorces, longer
life-expectancy for women, and fewer children. So family income in 2004
cannot correctly be compared to family income in 1964 "” today's family
income is spread around fewer people.

Adjusting for decreasing family size, real median family income is
13% higher than in 1994, 22% higher than in 1984, 37% higher than in
1974, and 88% higher than in 1964. That's a significant increase.

During the last election, politicians and pundits made a lot of hay trying to argue that the labor market was somehow broken and not functioning like it always has.  First, the argument was that we were having a "jobless recovery."  Then, when employment took off, the argument was that wages were somehow broken and trailing productivity.  Whether this was a secret plot by GWB or by Wal-Mart was never quite made clear.

Well, it turns out that the job market works like it always has.  In a cyclical economic recovery, employment and productivity gains always precede wage gains.  Wages tend to go up late in the cycle, after excess available labor is soaked up:

After four years in which pay failed to keep pace with price
increases, wages for most American workers have begun rising
significantly faster than inflation.

With energy prices
now sharply lower than a few months ago and the improving job market
forcing employers to offer higher raises, the buying power of American
workers is now rising at the fastest rate since the economic boom of
the late 1990s.

The average hourly wage for workers below
management level "” everyone from school bus drivers to stockbrokers "”
rose 2.8 percent from October 2005 to October of this year, after being
adjusted for inflation, according to the Bureau of Labor Statistics. Only a year ago, it was falling by 1.5 percent.

I am not one to really accept the "active bias in media" argument (I believe in a more passive bias based on reporters failing to apply skepticism to stories that fit their view of the world).  However, the bias crowd predicted that reported economic news would suddenly improve after the election and that certainly seems to be the case.

One final note - be careful of folks who are claiming that wages have not kept up with inflation for years.  Make sure they are using "total compensation, including benefits" and not just "wages."  The former number has consistently outpaced inflation.  These numbers diverge because the portion of compensation paid out in non-cash benefits has been growing as a percent of total compensation.

There are those of a libertarian bent who want to believe that the current bitch-slapping that Congressional Republicans are being handed right at this moment portends well for libertarians:  I beg to differ.  Don't get me wrong, the Republicans deserve what they get.  But this election should not be taken as a sign that the electorate is going all libertarian.  Forget exit polls and what the news says about why people are voting the way they are -- that stuff is always garbage.  Look past the people races and look to the ballot initiatives.

All over America, I don't think voters are punishing Congress for wielding too much power over their lives.  Because when the voters themselves are being offered legislative power via propositions to use the full coercive power of government to compel their neighbors to do the majority's bidding, they are jumping on the statist bandwagon gleefully.  Minimum wage hikes, smoking bans, new regulations, bans on gay marriage, restrictions on immigrants; heck, we even have ballot initiatives with micro-regulations for animal cage sizes.   They are all passing in Arizona and across the country. 

Currently 77% of Arizonans have voted to make Arizona prisons mini-Gitmo's for illegal immigrants, denying them bail for any crime.  75% want to make sure no Spanish is spoken in the statehouse.  66% want to interfere in employer/employee wage negotiations.  55% want to give bar owners no choice in whether they allow smoking in their own private establishment.

Note that there is no consistent theme of conservatism or liberalism in these issues.   The first two might be seen as "conservative" issues and the second two as "liberal" issues.  But the same 2/3 are voting for each.  This is not a victory for the left or the right, but for big government populism.  The voters are getting a taste of bending their fellow citizens to their whims via the government, and they seem to like it.

Update: I am trying not to get mad, but 75% - 3/4 of the people in this state - are voting to not allow illegal immigrants to collect punitive damage awards.  I'm sorry, I understand that people are frustrated with the immigration topic, but there are certain things that strike me as basic under any notion of equal protection, that should apply irregardless of citizenship status.  Protections we should offer to any human being that happens to be in our borders.  And the ability to seek redress for damages in court should be one of them.

In addition, 57% are currently supporting the initiative to ban probation for meth users, so that even minor meth possession charges will lead to a jail term.  This means that the hugely enlightened and highly successful policy of filling up jails with marijuana users is going to be emulated and applied to meth use.

On the positive side, so far the gay marriage amendment is not passing, and the proposition to put limits on Kelo-type eminent domain takings looks like it will pass.

There just seems to be a huge philosophical muddle behind the voting here.  The electorate votes to limit kelo-type government takings and to require compensation in zoning cases where private land values are reduced, but at the same time votes strongly to ban smoking in bars and to raise the minimum wage, both of which are effectively government actions that takes value away arbitrarily from certain private individuals and businesses.

For years I have lamented tthat the average American has no philosophy -- he or she only has a hodge-podge of inconsistent political views stitched together from his/her parents, from peer pressure of their social group, and from random encounters with the media.  Never have I felt this as strongly as I do tonight.

Arizona has pages of ballot initiatives (or propositions) up for vote on the ballot tomorrow.  Here is my approach to voting on these initiatives:

• My default is a no vote on everything.  After all, most of these initiatives are regulations and tax increases that even the legislature, not shy about passing either, has not wanted to take on.   Having a default vote is very helpful - if I am unsure, if there is doubt, if I don't fully understand the issue, then it gets a "no".  Like "not guilty" in a criminal trial, its my default answer.
• I then look for tax cuts and regulation relief.  There tends to be little of this.  We have one ballot initiative that looks like it will help keep property taxes under control, and one that does a nice job circumscribing eminent domain takings as well as regulating "soft" takings (changes to zoning or land use that make a property less valuable without compensation).  On these I will switch my vote to "yes".
• I then look at bond issues.  A growing city like Phoenix needs facility expansions, and bond issues are a reasonable way to do so.  However, a lot of crap gets loaded in these.  Typically they will say the bond issue is "for schools" to get everyone to vote for it and then load a lot of garbage in it.  I believe California has some of this going on.  We have no bond issues up for vote in my district but we do have a proposition to increase the size limit of future bond issuances.  I am still thinking about this one, but if I can't get excited about it, it gets the default vote - "no".
• I will then consider procedural changes in government, but with a heavy bias towards "no" due to the laws of unintended consequences.  I don't understand the procedural changes being suggested in two initiatives on public land use so I will vote no on both.  I will definitely vote no on the proposal to pay people to vote with a lotter ticket.  The proposal to effectively switch Arizona to all absentee balloting with virtually no polls is intriguing, but seems fraught with possibilities for unintended consequences (or secretly intended consequences I don't understand) so I will vote no there too.

I write in this blog often on my frustrations with regulation, but last night I learned, if I did not know it already, that things could be much worse.  I had dinner with some friends in London who are in the middle of a home improvement and renovation project on their 1830's era townhouse.  Now, I just completed a renovation of my own (1980's era) home in Phoenix, and, while home improvement is always frustrating, I at least had few problems with the city.  Phoenix will let you do about anything you want to your home as long as you respect your setbacks and don't install a nuclear reactor.

My London friends were not so lucky.  Their home is rated a class 2 historic structure, which means it gets a bit less scrutiny than class 1 palaces and stuff, but it still comes in for a lot of regulation.  Their plans had to be approved in detail, and I mean in gory detail, with the local history Nazis.  And this is for a building that really has little historic or aesthetic value (the owners would be the first to admit this) in a neighborhood that was nearly blighted thirty years ago. 

My hosts pointed out the dining room lighting, which was really dim (you could not see your food very well) band told me that the authorities would not let them add lighting fixtures to the room.  No doorways, moldings, or walls could be changed.  The funniest example of this was a doorway cut in a wall 20 years ago.  The government inspector came through the house and said "well, that door is not historic but I like it so you can't change it."  They thought the inspector was joking, but, after a lot of effort to get approval to change the door, found out she was not kidding. 

The staircase to the top floor (originally the servant's quarters) was steep and unsafe for their children, but the inspector insisted it could not be changed because the "logic" of having the servant's quarters accessible by a difficult staircase needed to be maintained.  The homeowners rebuttal that they had no servants and were more concerned with safety than the history of class differences in Britain had no effect.  In several cases where the homeowners argued that the portions of their house they wanted to change was not original to the house (and therefore not covered by restrictions) it was made clear that the burden of proof was on them, the homeowners, and not on the government.

As one other funny sidebar, the basements and below grade areas of these homes apparently don't fall under this scrutiny or are exempted in some way.  As a result, everyone in his neighborhood seems to be tunneling out into their backyards to expand their house.  One homeowner bought three adjacent homes and tunneled out enough area for an indoor underground swimming pool.

Can you imagine if someday the US government decided that those 1970's homes were subject to such historic restrictions?  Suddenly, by government fiat, instead of being stuck forever with insufficient lighting and unsafe staircases, you might get stuck with orange shag carpet and gold-mirrored walls.  If you think this is ridiculous, read this.

Suffice it to say, I am tired of a relatively small group of people imposing their wishes on other people's property, a practice I call eminent domain without compensation.  If you want something specific done to a piece of property, then buy it and have at it.

Our brave city of Scottsdale has come up with this pioneering idea:

Scottsdale's Historic Preservation Commission wants city staff to look
into designating '50s-era garden apartments as an entire historic
district

For those who have not struggled with this, being named a historic building or site can be the kiss of death - basically it means that the government has restricted your ability to do anything with your property.  You certainly can't tear the sucker down and put something more modern on your own land and you have to go through mind-numbing approvals and use special super-high-cost contractors even to do the smallest amount of work on the structure.  In some of the public parks we run, I know of several historic buildings that are falling apart because they have been named historic buildings and the bureaucratic headaches to even stabilize the roof and stop leaks is insurmountable.  (A few years ago I nearly got arrested for putting some tar paper on the roof of a historic cabin to try to stop the rain from getting in and ruining the building.  I was told that they would rather the building crumble to dust than let any non-authentic work be done on it).

Can you imagine having your dated 50's-era ugly home or condo designated so that you can't tear it down?  Does this mean that you can't even update it, to get rid of the avocado appliances? Apparently so:

Valarie Hartzell of Park Paradise, 6936 E. Fourth St., said condo
owners there also are making improvements, but city-approved
contractors balk at installing authentic, and perhaps hard-to-get,
fixtures

The woman driving this effort reveals the thinking so typical of these efforts:

Preservation Commissioner Nancy Dallett said the rare configuration of
the apartments in a single neighborhood may qualify them for a
geographic designation.

"The strength of our district is in the clustering of the apartments,"
Dallett said at Thursday's commission meeting. "I wouldn't want to let
go of any of these within the boundaries."

Don't you love that last line?  Look Nancy, if you want something specific done with this property, buy it yourself.  But don't try to manage property you don't own at costs you don't bear for an outcome you desire.

In a nutshell, such efforts result in the effective taking of the private property to meet some public good, without any compensation.  This is eminent domain without any payment at all, thereby taking Kelo even one step further.

By the way, this means you have about 20 years before your 1970's style house is declared a landmark, and you will be stuck forever with the orange deep shag carpet and mirrored walls, so move quickly on that renovation.

First, a little background as I understand workers comp:  Years ago, government, workers and employers effectively made a deal that has worked pretty well for everyone.  In that deal, workers gave up the right to sue for workplace injuries in exchange for a program where employers were required to contribute to a workers comp fund and employees are paid by a government bureaucracy for their health care and lost time.  The system is "no-fault" to the extent that it does not matter if the worker is hurt because the employer had unsafe conditions or if the worker is hurt because he did something boneheaded in violation of rules - either way he gets paid the same.  The system avoids moral hazard at least on the employers side by charging higher premiums to employers that have higher claims rates  (based on an experience mod system explained here).  Employee moral hazard (ie cheating) is supposed to be policed by the bureaucracy, and one can evaluate how much cheating is going on by how high the rates in the state are.  California used to have very high rates and lots of cheating, but has cracked down of late and things are better.  Florida is the king of workers comp fraud and employee cheating, so much so that many national insurers won't touch Florida and our rates are twice as high (or more) in Florida than in other states.

Already frustrated with Florida over the high amount of cheating and high rates, two things I have seen here of late make me doubly depressed.  First, in the last year or so we have started to see claims paid where in addition to, say, $20,000 in actual compensation to a worker, there is an equal amount paid to lawyers.  The first time, I was irate.  Why are my workers comp dollars going to lawyers?  The whole point of the workers comp system is to substitute an administrative no-fault claims system for expensive lawyers and trials.

So this week I get my second surprise about Florida workers comp.  I am down in Florida, doing some business as well as visiting the in-laws (which is why blogging has been light) when I start to hear radio commercials by law firms that say "If you have been hurt at work, call us first before you claim workers comp."  The message is not even, "call us if you think the administrative decision was unfair" but was "get us involved with every little claim."  Does this mean that I am going to start seeing a lawyer 'tax' on every workers comp claim in Florida?  If so, Floridians must have passed some pretty dumb legislation somewhere along the way.  Now, I might understand this if this was a worker backlash in some state that administratively is over-tough on workers in filing their claims, but Florida has historically been the most generous already.  I am sure most of the employers in this state have experienced the "debilitating injury the day before I was going to quit,"  a tried and true Florida technique for supplementing unemployment insurance for a bit of paid vacation. 

Maybe some of the readers can confirm if Florida did something new legislatively over the past few years that opened this up.  By the way, and I apologize in advance to all my hard-working readers in Florida, but I don't think there is any other state with a larger population of searching-for-something-for-nothing freeloaders than one can find in Florida.  Something culturally seems to be wrong here, and I wonder if Florida might not be the next California, with businesses heading for the exits.

As a follow-up to this post, I wanted to take on the argument that people use against the US's health care system, arguing that it must be worse than other countries socialized approach because it costs so much more.  Well, I am the first to agree that reduced regulation and a better matching of who is paying the cash to who is receiving the services would result in huge cost savings.  However, it may also be true that you get what you pay for, as discussed in Cafe Hayek.  The key chart is shown below:

One thing I forgot to mention in the previous post was a bit of background of exactly why we have a model where health care is payed for by the employer.  This structure of company-paid health care was not a natural market evolution, but was in fact a direct result of several very distorting government regulations.

Company funded health care plans began in the 1930's and 1940's as a way for companies to try to get around government controls and freezes on wage rates, first instituted with the NRA and later during WWII.  In particular, during the incredibly tight domestic labor markets in WWII, employers struggled with government-mandated wage controls, and used the promise of employer-paid health care as a way to provide higher effective compensation to attract employees, since these non-cash benefits were not counted in the wage freeze calculation.  After the war, the government locked in this practice when the IRS and Congress agreed that company-paid health care was not taxable as regular income, meaning that such health plans were given a strong tax-preference over cash wages.

Finally, if you are not familiar with the appalling experiment in fascism that was the NRA, I wrote about it here.

I was doing some research for a longer post, and ran across a Constitutional amendment that I did not know even existed.  I had thought the 26th Amendment lowering the voting age to 18 was the most recent, but there is one more.  It was ratified in 1992.  Anyone know what it is? 

Answer below the fold

Continue reading ‘Twenty-Seventh Amendment’ »

Up until the last month, I have been very happy with Amazon Prime, the service where you pay $80(?) for a year of free 2-day delivery.  I am sure I have ordered more stuff from Amazon because of it, and I know I order it faster because I don't wait weeks with things in the shopping cart to group shipments.   

However, in the last month, I have had not one but two orders show up in 7-8 days instead of two.  The first was a Batman Begins DVD, pre-ordered to ship on its release date (which it apparently did).  It was shipped USPS, so there was obviously no hope that it would arrive in 2 days.  The second was a new Nikon D50, which was back-ordered for about a week.

I never really got an explanation for the DVD shipment (maybe they don't apply Amazon Prime to pre-orders?), but I did get some explanation for the Nikon D50.  After writing Amazon, asking them why my item shipped UPS Ground with a 7-8 day delivery time instead of 2-day, which I had paid for with Amazon Prime and was listed as the shipment method on the order page, I got this response  (greetings, apologies, etc. omitted):

After your order leaves our fulfillment center, we may use any
appropriate ground or air shipping service necessary to ensure that
your order is delivered within one or two days, depending on the
delivery option you selected.  These delivery options do not
directly correspond to any carrier-branded shipping services.

I have researched the order in question, and it appears your package
will arrive on time.

We understand that customers who select Two-Day or One-Day delivery
want to receive their orders faster, and we will only use an
alternative shipping method when we know your order will arrive by
the estimated delivery date. 

This is obviously not very clear, but here is what I infer:  When the item was back-ordered, they gave me an updated delivery date range, something like "estimated delivery Nov 2-10".  What I infer from this email is that once they give you an estimated delivery date range, they feel like their obligation to ship 2-day is voided.  The only obligation they now feel they have is to hit that date range.  So, despite the fact that my camera shipped on Nov 2 and I paid for 2-day shipping, they feel they are meeting their obligations if it gets to me by Nov 10, the back end of their estimated range.

The conclusion is not to feel sorry for me that I have to wait to play with my new toy, but that this may be the first sign of a program that is being gutted under profit pressure.  When lawyers looking for loopholes take over the customer service and fulfillment department, things can go downhill pretty quickly.  Note that the "est. delivery date" dodge really gives them carte blanche to get out of the 2-day obligation any time they want, since they set the estimates. 

As a note, I tried to confirm my interpretation with Amazon and have been unsuccessful.  In the tradition of making itself one of the hardest companies in America to actually contact, one can't reply to their customer service email so I can't get an easy confirmation or clarification.  I actually got and called their customer service phone number, which you will never find on their site (write this down:  1-800-201-7575).  The person on the other end of the line was useless, not understanding that I wanted a clarification of the Amazon Prime rules rather than some resolution of a particular order.  She couldn't access the emails I had sent to customer service or had received from them, and didn't seem to understand Amazon Prime rules, so she was no help.  The only funny part was that as I kept trying to clarify what I wanted from her, she kept upping the gift certificate amount she offered me as compensation, despite the fact that I kept saying "I don't want money I want to know what the rules are".  I think I ended up with $20 without even wanting it.

Which makes me wonder why I can't reply to Amazon's customer service emails.  I don't have a problem getting customer support via email rather than the phone, but to make this work I really need to keep working through to resolution with the same person, and the Amazon process makes this impossible.

Groups like the NAACP are actively pursuing claims for compensation from both corporations and governments for slavery in the United States 140 or more years ago (that's 7+ generations in the past).  The particular article linked is on seeking reparations from corporations, but many efforts exist to extract compensation from taxpayers, e.g. you and I.

Lets forget for a minute why I owe money for what my great-great-great-great-great grandfather did to your great-great-great-great-great grandfather.  Lets even forget that my great-great grandparents and all preceding generations of my family did not even live in this country.  Forget even about whether a statute of limitations has been exceeded by waiting 140+ years and seven or more generations to file a claim.

Lets however ask the question of what damages are incurred by the current generation of African-Americans who are decedents of American slaves.  Clearly the slaves themselves were irreparably harmed by slavery, but lets talk about the people who are actually bringing the suit.

If it were not for slavery, then many African-Americans today would be ... in Africa.  And in Africa, they would very, very likely be in horrible mind-numbing poverty (see Live8).  Its hard to pin down a number, but estimates of average incomes in Sub-Saharan Africa are between $600 per year and $1,770 per year.  By comparison, the average income of an African American was $14,397 in 1999 and is certainly higher today, since black incomes are growing rapidly in this country and actually falling in Africa.  And African American life expectancies, which still have some catching up to do with whites in the US, are nevertheless 10-25 years longer than their counterparts in the old country.  Everything from AIDS survival rates to education levels to VCR ownership and Internet access are far superior for American blacks than blacks in Africa.  So in this context, how does one demonstrate economic damages from slavery?

If I were an African American, I would give thanks every day that my ancestors endured the torture and humiliation and horror of slavery so that today my family could live, despite frustrations that sill exist for blacks, in relative wealth and prosperity and good health instead of some sub-Saharan shit-hole.

One Note:  I have certainly gotten some interesting emails on this one, including at least one "you will roast in hell" offering.  One comment I have gotten several times is "But there is no statute of limitations on murder, so how can there be on slavery?"   To which I answer - yes, there is not statute of limitations on murder, BUT, if we fail to catch a murderer in his lifetime, we don't throw his kids or grandkids in jail in his stead, nor do we ask his grandkids to pay reparations for his murders.  If we suddenly could absolutely prove the identity of Jack the Ripper, would we track down all his descendants and sue them for his actions? 

The second comment I get, presumably from African-Americans by the pronouns "I" and "we" used in the emails, is "we had our heritage ripped away".  I will confess that I may have a blind spot on this loss-of-heritage issue.  My great-grandparents were forcibly exiled from Germany about a century ago, and I don't shed any tears for my lost heritage, particularly given Germany's atrocious actions during the twentieth century.  I am thrilled to be an American and reject or at least ignore my German heritage.  I am not at all saddened my disconnectedness from the Kaiser or Hitler, and am not sure in turn that if I was black I would feel a loss from not being closer to Robert Mugabe or any of a zillion other repressive African regimes. 

By the way, in terms of being disconnected from one's heritage,  I have no way to prove it or get the numbers, but I would be willing to be that there are more college students right now studying black and/or African history in the US than in the whole of Africa.

Aspiring Governor, self-proclaimed substitute for the SEC, and enemy of Antarctica Eliot Spitzer is about to start a criminal trial against Dick Grasso, former head of the NY Stock Exchange (NYSE). 

And I have no idea why. 

Certainly it has something to do with Mr. Grasso's pay, which Mr. Spitzer thinks was too high.  The NYSE, for those who may be confused, is a private institution owned by some of the richest and supposedly financially savviest people in the country.  The owners or seat-holders select a board of directors, who in turn approved Mr. Grasso's pay package.  I imagine that there are folks who think that the stock exchange is a public institution or uses public money, but it is not and does not, though it does have some quasi-regulatory responsibilities.

The best I can figure it, Mr. Spitzer is arguing that Mr. Grasso somehow tricked these babes-in-the-woods on the board, which include naive and inexperienced people such as CEO's of Fortune 50 companies, heads of investment banks and brokerage firms, and a former US Secretary of State.  Now, I can imagine that the government might have an interest if Mr. Grasso somehow cooked the books to inflate his pay fraudulently.  In fact, the director of HR has admitted he did not give the board all the relevant information, but board members have already said that they did not rely on this person for their information.  Remember that most of the folks on the board themselves get paid in a similar league as Mr. Grasso's pay, so most saw it as a competitive offer, at least until negative publicity caused all the cockroaches to run for cover.

So Mr. Spitzer is starting criminal proceedings against people who he thinks negotiate too well for themselves or are paid more than they are worth.  I am sure glad he wasn't doing this 15 years ago.  I remember getting hired as a new Business school grad at McKinsey & Co. as a consultant for some ridiculous amount of money, and thinking "I can't be worth that!  I don't know anything!  Are they really paying me to tell experienced CEO's what to do?"  Boy, what panic I would have had if I had known there was an AG out there looking to send overpaid people to jail!

The WSJ has a really fascinating editorial that I will link to, though a paid subscription is required (update:  Try this link instead, it may get you there free or maybe here).  The overall picture is one of, if there was a crime at all, the wrong people are on trial.  Here is a taste:

In early June of 2003, when the
membership of the [NYSE] compensation committee changed, the Webb interviews
begin to tell a story of wider board dysfunction. And if there was a
screw loose in this new operation it appears to be not Mr. Langone --
who by all the interview accounts ran a tight ship -- but his
successor, [former New York State Comptroller Carl] McCall. This is a vital point, given that Mr. Spitzer, a
fellow Democrat, did not name Mr. McCall in his lawsuit. What toppled
Mr. Grasso was not the $139 million payment the board approved in
August of 2003 but the later news that Mr. Grasso was owed $48 million
more. Many board members said they didn't know about this payment and
for that many blame Mr. McCall.

The interview notes are rife with comments that Mr.
McCall had little inclination or ability to understand the contract he
took over negotiating. An outside consultant, William Mischell, said
that when he and Mr. Ashen explained the contract to Mr. McCall, "the
meeting . . . lasted somewhere between 15 to 30 minutes, with McCall
making or taking phone calls throughout and not really focusing on the
details." Mr. McCall himself told investigators that "the subject of
executive compensation was entirely foreign to him" -- yet he refused
offers of help to explain the contract to others. When asked why Mr.
McCall was chosen to chair the committee rather than someone more
knowledgeable, Mr. Karmazin told the Webb team that it was an "image
thing" (the NYSE had just instituted new governance standards).

Mr. McCall's excuse for not giving directors
"additional details" about the $48 million or other aspects of the
contract -- which were clearly stated in the text -- is that "he was
not aware of any." That's because, as he admitted, he didn't read the
full document, even before he signed it. Moreover, at least one
director, Van der Moolen's Mr. Fagenson "asked McCall twice to make
certain that all pension plans and other plans were going to terminate
on this date, but stated he never received any updates from McCall on
these issues."

As Mr. McCall went to brief the full board on Aug. 7,
2003, he was given talking points that referenced the extra $48 million
but didn't read these or tell the board. J.P. Morgan Chase CEO William
Harrison noted that Mr. McCall "did not appear to understand the
proposed payout very well. . ." Avon CEO Andrea Jung noted that "McCall
struggled" and that "others were more able to answer questions." Mr.
Karmazin described Mr. McCall as "flustered," and said he did a
"horrible job" of explaining the numbers. Leon Panetta, former Clinton
White House chief of staff, speaking of a later McCall performance, was
blunt: "Carl knew nothing."

The article sums up the Board this way:

The board, which was often
dysfunctional, was stocked with celebrities from diverse
constituencies, many of whom didn't understand the NYSE or take their
responsibilities seriously. Former New York State Comptroller Carl
McCall, who brought Mr. Grasso's contract to fruition, was viewed by
his colleagues as incompetent and, in the words of Goldman Sachs CEO
Henry Paulson, not "financially sophisticated." Former Secretary of
State Madeleine Albright felt she shouldn't "question" the pay; Bear
Stearns CEO James Cayne admitted he "tuned out" of the pay proceedings;
and Van der Moolen Vice Chairman Robert Fagenson suggested the only
real concern was "how this was going to reflect on the Board."

But the interviews also make clear that more astute
board members, such as Mr. Langone, former Viacom President Mel
Karmazin, and former Merrill Lynch Chairman David Komansky, took it
upon themselves to understand Mr. Grasso's contract, and offered strong
arguments for why they'd paid him as they had. "We knew what we were
doing when we paid him. We did it purposely, and we believed it was the
right compensation," Mr. Komansky said in his interview

In this environment, Grasso is culpable, how?

Forget the UN and judge nominations and other trivial matters.  This weekend is the NFL draft.  Via Marginal Revolution comes this cool article about the economics of the NFL Draft.

The article is pretty long, so let me summarize the couple of things I thought were pretty interesting.  The first was the relative value of draft picks.  They did a lot of work quantifying the performance of players selected at different positions in the draft (i.e first pick, second pick, etc).  You'll have to see the detailed study as to their methodology, but it struck me as pretty reasonable.  They also looked at the cost or salary by draft pick.  Combining the two got this curve:

The "surplus" line is the difference of the curves, ie performance value minus compensation cost.  Since compensation costs fall faster in the late first round (the first round is 30 picks) and into the second round than does performance, the surplus value peaks in the second round.  This does not mean the best players can be found in picks 25-75, but it does mean that the best values can be found there.  Since the NFL works under a salary cap that equalizes total compensation, the best team should be the one that consistently picks these value players (this is different than the baseball / NY Yankees model, where there is no cap, and maximum performance presumably comes from getting the top players, irregardless of salary).

If this is correct, teams should be willing to straight-up trade a pick in the top 15 for a pick around 35.  However, in reality, they can usually trade a pick in the top 15 for two or more picks in the 25-75 ranges, which should make the trade a no-brainer.  Interestingly, the market for picks is actually going the other way:

The researches studied hundreds of past draft day trades of picks to generate these curves.  It basically says that early picks are valued exponentially higher than even late first round picks, and this preference for very early picks has actually increased in the past few years.  This curve says that a #5 pick might be worth at least 3 and possibly many more picks in the 25-75 band.

Given these two curves, if they are correct, why don't more teams trade their top picks into the 25-75 band.  There are at least 3 answers to this:

1. Read Moneyball.  Once you read it, you will understand that sports GM's do not understand these concepts of value.
2. There may be other values, other than player performance, that teams get from top picks.  For example, most fans will have heard of the top ten people drafted, but will know few from the 25-75 band.  The top, well-known picks generate a disproportionate amount of fan excitement and "hope" which can translate into more paying butts in seats, which this study does not take into account
3. Some teams are getting it.  In listening to several mock drafts lately, it is clear many teams want to trade down from the top picks this year - no one wants to pay the signing bonuses commanded at these levels.  By the way team that has traded for the most picks in this band is ... Philadelphia.  Who has been in the NFC championship game 4 years in a row, so maybe someone out there does get it.