Debt limit

As a free market advocate, I don’t think government should have a debt limit.  Such a limit is a good example of a non-market-based, government interference that produces bad unintended consequences.

We’re seeing one of those consequences play out now as the debt limit is used by all sides as a political bargaining chip to pick winners and losers.

The debt limit is phony.  It has no bearing on reality.  It is not tied to the actual fiscal health of government finance.  It says nothing about whether lenders would continue lending to the US government or whether the government has ample funds to service its obligations.

It’s just an arbitrary limit, that can be changed.  It was set by previous politicians so they could claim to support fiscal responsibility in their campaign speeches.  As with many such political actions, they only give rise to political theater down the road.

I don’t believe the government should borrow ad infinitum.  I do believe the government should exercise good fiscal discipline.  But I believe credit markets are more effective than Congress at regulating borrowing.  I also believe voters should be more effective at voting in candidates that will support fiscal responsibility.

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Bill Gates is wrong on education

In the Wall Street Journal Opinion Weekend, Jason Riley asks Bill Gates, Was the $5 billion Worth It?

Bill Gates, through his charitable foundation, has sought ways to improve education for 10 years and has failed to produce results.

In this paragraph, Gates seems to rely on some data to back his position:

“We have heavy union states and heavy right-to-work states, and the educational achievement of K-12 students is not at all predicted by how strong the union rules are,” he says. “If I saw that [right-to-work states like] Texas and Florida were running a great K-12 system, but [heavy union states like] New York and Massachusetts have really messed this up, then I could draw a correlation and say it’s either got to be the union—or the weather.”

Immediately following, however, is this paragraph:

Mr. Gates’s foundation strongly supports a uniform core curriculum [i.e. one-size-fits-all] for schools. “It’s ludicrous to think that multiplication in Alabama and multiplication in New York are really different,” he says. He also sees common standards as a money-saver at a time when many states are facing budget shortfalls. “In terms of mathematics textbooks, why can’t you have the scale of a national market? Right now, we have a Texas textbook that’s different from a California textbook that’s different from a Massachusetts textbook. That’s very expensive.”

And later:

Nor does he see the need for competition among state standards. “This is like having a common electrical system. It just makes sense to me.”

So, with unions he relies on data to see if they have any effect on quality.  Yet he seems to want to whack out competition and innovation of curriculum without evidence to support that this would actually drive improvement in education quality.  It just makes sense to him.

I’ve seen quite a few decisions made by folks that just made sense.  They learned shortly thereafter why it didn’t make sense.

I was disappointed the article didn’t mention Gates’ involvement with the Khan Academy.  Ultimately, as with any other market that has evolved over the past few centuries to deliver amazing products, bottoms-up innovation and competition is what drove it.  Khan Academy is disruptive.

Top-down innovation rarely works and often causes massive failures.

The article made it appear like Gates kind of knows this, but he’s too timid to upset the existing rent-seeking constituencies in the education establishment.

Notes from the road

With the budget talks this week, someone asked me what that’s all about. Here’s how I summed it up.

The side that wants to raise the debt limit is saying that they want to spend more of our money and avoid making tough choices about government spending.

That side also told us a couple years back that if they spent more of ours and our children’s money the economy would improve and we’d get a payback on that spending. By the way, their current actions of wanting to get more of our money is evidence their plan didn’t work.

The other side at least wants to start entertaining tough choices on spending and they’re not that interested in spending more of our money.

“Eat our peas”?

I would like to see a teenager try this one out on his parents.

Mom, Dad, I know I’ve spent irresponsibly and I’m at the limit you gave me on my credit card.  But, if you don’t call the credit card company and have my limit raised, bad things will happen.  Now is the time to do it.  You got to eat your peas.

Somehow I think that expression fits better in the parents’ argument.

Son, Is it a surprise to you are nearing your credit limit?  You said yourself, that in the United States of America we don’t run things 3-months or 6-months at a time.  Yet, here we are.  You didn’t look at your spending behavior a year or two ago and think, hmmm….I have a limit?  If I keep spending like this I will hit it in 2011.  Maybe I should do something. No you waited until about 3-to-6 months ago to start thinking about it and your main solution is for us to let you borrow more money on our good names?

Now is the time for you to eat your peas.  You need to make some tough choices.  You need to cut your spending.  I know that won’t make you or your friends — who you buy things for with our money — happy.  But that’s generally what ‘eat your peas’ means.  

What you want to do is not eat your peas.  You want to feed them to the dog, then you want to have your cake and eat it too.

Is it worth it? Can we afford it?

Alan Blinder, Princeton Economist, continues to make a mistake regarding government jobs.  Writing about Our National Jobs Emergency in the Wall Street Journal yesterday he repeated the error I wrote about in this post.

Blinder wrote:

Every day brings new proposals to slash government spending. But as I noted on this page last month, those are ways to kill jobs, not create them. As a matter of fact, despite all the cries of “big government” or even “socialism,” public-sector employment has been falling.

Over the past two months, while private businesses were adding a measly 130,000 new jobs to their payrolls, governments at all levels were shedding 87,000 workers. Looking over a longer period, public employment at all levels is down by 522,000 jobs over the last two years. Does that make sense in a jobless recovery?

The answer is yes, it makes perfect sense.  As I noted in my response to him last month:

Public spending should not be accepted based on the idea that it creates jobs.

Justifying expenditures because it creates jobs is not any better when evaluating public spending than it is when evaluating private spending.  When you spend money, is creating jobs a key factor in your decision?  No.  You justify your spending based on the direct benefits you receive.

Whether the economy is in a ‘jobless recovery’ is a red herring and irrelevant to whether or not government should shed jobs.

The answers to the following two questions are what’s relevant:

1) Is the value created from these jobs worth it?  Though a better way to ask this question when you’re spending someone else’s money is, would you pay for these jobs if it was your own money that you were spending?   (If so, why aren’t you?)  Hint: The value should be created as a product of the work performed.

2) Can the government afford these jobs?

Government revenue is down because the economy is hurting and folks are out of work.  When a business experiences revenue declines, shedding jobs to keep the firm viable is a tough, but responsible, response.  Financial insolvency or bankruptcy is not responsible and hurts many more people.  Life is full of hard choices.

When individuals experience declines in income, they shed expenses also.  They typically do not continue to spend by borrowing from credit cards in hopes that their spending will help the economy.  Some do and we all know it doesn’t end well.

Let’s say my income declined and I consider cutting my expenses by eating more home cooked meals.  I don’t consider if my action will further hurt the economy.  Quite frankly, I’m not smart enough to know if it will or not.  Neither is Blinder, though he believes he is.

I am smart enough to make responsible choices for my situation.  I ask the two questions.  Is it worth it?  Can I afford it?

Once folks like Blinder harness government to serve purposes beyond these two questions, it’s hard to go back.  The Blinders of the world will tell us we need government jobs to help the economy in bad times and they will tell us we need government jobs, for whatever reason (e.g. to solve something they believe the market is not addressing), in good times.  For them, there always seems to be good, though dislocated, reason for growing government and no acceptable reasons for decreasing it.

Leadership

Thanks to my brother for sending me the link to Ken Robinson on the Principles of Creative Leadership on the Fast Company website.  The best piece of it:

The role of a creative leader is not to have all the ideas; it’s to create a culture where everyone can have ideas and feel that they’re valued. So it’s much more about creating climates. I think it’s a big shift for a lot of people.

I found the rest of the article somewhat vague.  But I agree with this paragraph.  Leaders of many organizations — government, companies, non-profits, clubs, charity events, etc. — could benefit from learning this.

Leaders often mistakenly believe their role is to come up with the new ideas to move their organization forward.  They believe they need to chart a course.  The followers don’t help, they also often believe this.  It’s tempting to try to be the hero and to expect leaders to try to be heroes.

But it is also ineffective and risky.  Certainly, it appears to have worked in a few circumstances.  Steve Jobs pops to mind.  But, I would be willing to bet that there are some unsung heroes even in his success stories.

It’s not ineffective and risky for leaders to come up with new ideas.  It’s ineffective and risky when its only their ideas that get attention and organizational resources for several reasons.

Why?  Because so many successes are the result of accidental experiments.  Somebody’s track record isn’t necessarily a good predictor of their future success.  The folks who do have a good number of successes probably have more trials and failures as well.

The reason why this leadership style isn’t prevalent is because few people believe this.

I think back to this and this post on Felix Dennis, publisher and billionaire.  He has come up with a number profitable ideas in his day.  But, the true secret to his success is how he has harnessed the ideas of others.

Emergent order – Bicycling edition

The peloton during the 2005 Tour de France. Cl...

Hey! Slow down!

As an avid cyclist since just about the time that I could keep the bike upright, I was pleasantly surprised to recently discover emergent order in cycling.

While reading the most recent Bicycling magazine, I took the ten question quiz entitled Group Dynamics.

The quiz covers the etiquette of riding with a group of other riders (a.k.a. “pack” or “peleton”).

For example, here’s question 1:

It’s your turn at the front. You gracefully slide into position, then. . .
A. Accelerate to drag the line with you.
B. Maintain the average pace of the group.
C. Adjust your speed to accommodate all levels of effort within the pack.

I scored 10 of 10.

I never took a class or read a book about group riding etiquette.  I had adopted these unwritten rules informally through decades of observation, experience and interaction with other riders in local group rides.

I found it amazing that my understanding on etiquette lined up perfectly with the editors of a magazine who live thousands of miles away.  This is exactly what is meant by the term emergent order.

These rules of etiquette have emerged without design.  Just plain folks naturally developing, adopting and enforcing standards and customs of interaction in the real world and in real time.  There was no committee or governing body of cycling who designed these rules.  And even without design or documentation (save for this quiz), the rules appear to be remarkably consistent across different localities.

These rules are propagated and perpetuated by informal enforcement.  In one of my regular local group rides, that we call Hammerfest (which is itself a message to beginners that we don’t wait for them), we occasionally get a new rider who is not familiar with these rules.

When we start on the flat part of our normal course, we form a pace line to work against the wind and take turns at the front.  When its the new person’s turn to block the wind, almost invariably, he or she will commit party foul A (see above) by accelerating above the pace that has been established.

And, invariably, some of the experienced riders correct the behavior. The corrective action usually takes the form of sarcastic comments as the new person floats to the back of the paceline.  Wow, is your speedometer working?  You really pushed up the pace.  We were doing 22 and you pushed it to 26. 

Or, they might retaliate nonverbally by pushing the pace harder when the new guy is trying to grab onto the draft at the back of the paceline after having buried himself while taking his turn up front.

There are other enforcements, but these two are common and usually have the desired effect.  The new guy receives the message that he needs to evaluate the pace before he takes the lead and keep it close (usually +/- 1 mph) to that when it is his turn on front.  He modifies his behavior and the group dynamic is preserved.