Saturday, February 21, 2015

Don't Pay the Teachers, Compensate Them

In complex issues, simplification is common but improper. On the issue of what teachers are paid, it is a gross over-simplification to focus on their salaries. Yet that is all anyone ever talks about. I try to point out this flaw in a recent letter.


Dear Editor:
Friday's MDJ reported on the level of salary for some Cobb County school teachers and compared those salaries to what is offered in other area school districts. Although I have sympathy for the idea we should pay our (Cobb) teachers more, there are three key concepts missing from this discussion.
First, the focus of the discussion centers on salary, instead of total compensation. A proper analysis would measure all the ways a teacher is compensated. This would include other monetary factors such as paid time off, insurance benefits, and, importantly, retirement compensation (pension, insurance, etc). This would also include non-monetary compensation, such as work environment (class size, safety, quality of students, facilities, quality of co-workers and supervisors, opportunities for advancement, etc.). And a proper comparison would take into account the cost of living. Just as a teacher in Wyoming can live an equivalent lifestyle on less compensation than one could accept in metro Atlanta, teachers in Cobb enjoy a lower cost of living than many surrounding areas.
Second, the analysis should include some comparison to other available jobs, not just teaching jobs. Could a recent graduate with an education degree earn more or less in other professions? And if the district's goal is the pay enough to hire the best, shouldn't it pay enough to be competitive with other industries?  Is the goal to hire the best math teacher or the best mathematician; the best science teacher or the best scientist?
Third, it appears the analysis treats all employees at a given level as identical. In many other professions, employers pay varying amounts even to rookie employees based on many factors. Perhaps if the system had flexibility to pay those with better resumes more money, the district could hire better employees without a significant increase in total cost. I understand there maybe collective agreements prohibiting this, but it should be acknowledged these practices are sub-optimal.
Respectfully,
Russ Wood
West Cobb

Monday, February 16, 2015

PieFarmer Podcast Episode 1 - John Loud of Good for Cobb

Edit: I think the sound issues are finally fixed acceptable. 

It's official, the internet has reached the point of absurdity. I now have a podcast, making me one of the last 100 folks on earth to do so.


Anyway, I like to talk economics, and this is just a way for me to talk with interesting people who might not otherwise take my call. My original objective was to do a small series on Classical Economics. I've decided instead to add local economic issues and conversations. 


My first episode fell into my lap, when several folks I know launched a new advocacy group. I was able to speak with their Co-Chair, John Loud about their group, Good for Cobb, and about economic development at the local level. John is founder of Loud Security.


I have a voice built for pantomime, and my editing skills are poor, but here's my first effort. I don't have any specific timeline for the next one, but several are in the works. 


Please note, I used three pieces of music to spice up the podcast. All three works are by the artist  And Other Things and are licensed under a Creative Commons Attribution 3.0 Unported License.  (CC) 2006-2013. I found the music at Opsound.


Lara Lay is used in the open, MIMO is used after my introduction, and Just Like You ends the podcast.


You can find more works by And Other Things at 

www.reverbnation.com/andotherthings
www.soundcloud.com/andotherthings

To hear the podcast, use the player below. You can download the MP3 here.




 Time Stamps:
00:30 Welcome and Introduction
03:35 Interview with John begins
08:20 John's take on the local economy
11:50 How Good for Cobb emerged




Tuesday, February 10, 2015

Dynamism

From Jude's essay, Karl Marx Revisited:

It is more than a convenience for modern economists to ignore the role of risk-taking and innovation. The profession's determination to convert Keynesian demand theory into an exact science ran afoul of Princeton mathematician John von Neumann, who in 1936 demonstrated that risk and innovation could not be converted into mathematical equations. To this day, the computers that drive economic policymaking in most of the West cannot handle questions relating to this basic ingredient of entrepreneurial capitalism. Taxation of either business profit or an increase in the value of capital assets (a capital gain) are dealt with in static, linear fashion, as if the risk-taker is largely unaffected by variations in reward.14
In Human Action, Ludwig von Mises's 1949 magnum opus, we find the first connection between confiscatory taxation of risk-taking as an instrument of the bourgeois oligarchs, much as the oligarchs employed the Smoot-Hawley tariff to thwart external competition. We quote at length this fascinating passage:
Confiscatory taxation results in checking economic progress and improvement not only by its effect on capital accumulation. It brings about a general trend toward stagnation and the preservation of business practices which could not last under the competitive conditions of the unhampered market economy...

Every ingenious man is free to start new business projects. He may be poor, his funds may be modest and most of them may be borrowed. But if he fills the wants of consumers in the best and cheapest way, he will succeed by way of "excessive" profits. He ploughs back the greater part of his profits into business, thus making it grow rapidly. It is the activity of such enterprising parvenus that provides the market economy with its "dynamism." These nouveaux riches are the harbingers of economic improvement. Their threatening competition forces the old firms and big corporations either to adjust their conduct to the best possible service of the public or to go out of business.

But today taxes often absorb the greater part of the newcomer's "excessive" profits. He cannot accumulate capital; he cannot expand his own business; he will never become big business and a match for the vested interests. The old firms do not need to fear his competition; they are sheltered by the tax collector. It is true, the income tax prevents them, too, from accumulating any capital. But what is more important for them is that it prevents the dangerous newcomer from accumulating any capital. They are virtually privileged by the tax system...

The interventionists complain that big business is getting too rigid and bureaucratic and that it is no longer possible for competent newcomers to challenge the vested interests of the old rich families. However, as far as their complaints are justified, they complain about things which are merely the result of their own policies. Profits are the driving force of the economy...He who serves the public best, makes the highest profits. In fighting profits governments deliberately sabotage the operation of the market economy.15

While von Mises is viewed by America's intellectual aristocracy as an extreme conservative in his economic views, there is a definite flavor of Marx in this passage. In fact, even though the two are at polar extremes, they merge in their hostility to the politically entrenched vested interests of the Big Business bourgeoisie. If they were alive today, they no doubt would have similar perspectives on the state of the world economy, which is, after all, what this essay is all about.

And..

These are the people {blacks and the poor} who would benefit most by having tax rates and regulations which stand as barriers to new enterprise pushed aside.21 Professor Reuven Brenner of McGill University in Montreal made this point in a paper on taxation prepared early this month for the new government in Ottawa, 'Taxation in General, of Capital Gains In Particular." Brenner argues that a high capital gains tax produces "a static, frozen, stratified society," whereas a "lowered capital gains tax could facilitate increased movement within the distribution."
A tax that prevents or slows down such movement is a far more progressive tax than one which would impose, let us say, a 50 percent marginal tax rate on the rich, and a 10 percent marginal tax on the poor. For when the revenues from the 50 percent tax on the small number of richer people is redistributed among the large number of the poorer, that will not allow any of the poorer to become rich. They become somewhat less poor, but still stay at the bottom of the ladder. In contrast, when there are more chances of obtaining credit with a lowered capital gains tax, the talented poor have greater hopes of moving up, something that progressive taxation, no matter how generous can never give.

Saturday, January 31, 2015

Eminent Failure

Eminent Domain is a process by which the government takes private property, purportedly for the public good. Locally, we have a case of eminent domain where the city has taken an operating business in order to create a public park. The city wishes to pay for the property based on the land value, not its commercial value. The mostly white government is taking land from a minority citizen.
So, I protested. I took the cheap route, using sarcasm, recalling the old sit-com Father Knows Best. In the second paragraph, I play the race card (really, I address race which was mentioned in the article). Honestly, I doubt the city has any racial biases. But the job of a political leader is to be beyond reproach. The mere appearance of a racial bias is a failure. I don't think the city is underpaying this man because of his race. But the city is majority white, and they've never attempted to take a white man's property, especially at less than fair value. The city leaves itself open to charges of racism, which is reason enough not to take private property.


DEAR EDITOR:
Thursday’s MDJ reported on the efforts of a Marietta man to fight for his property. It is sad to see Mr. Summerour and his neighbors suffer under the delusion they know what is best for their community. Thankfully, Marietta has a benevolent government, willing to educate the children of the family on what is best for them. Around this dinner table, government knows best. Summerour and his neighbors may think they desire a grocery store, but hopefully they will come to see the superiority of the government’s plan for a park.
As for the charge the city is mistreating Summerour due to his race and the race of his neighbors, that cannot be the case. Simply look at all the times the city took property in white neighborhoods by eminent domain so that black communities could access those areas. I cannot recall any, but there must be several of those cases, right?
Russ Wood
Cobb County






Sunday, January 11, 2015

The Investment Objective

At first glance, it might seem obvious one's portfolio goal is to maximize returns. In reality, the goal should be to maximize realized returns over the long-term. Realized returns are maximized by avoiding (or minimizing) taxes and fees. For this reason, most investors should favor index funds and trade infrequently. The long-term is defined as multiple market cycles (up and down markets). When it comes to maximizing long-term compounded growth, the key concept boils down to how one's portfolio manages bouts of volatility. This post will focus on the importance of minimizing volatility. Instead of discussing the academic versions of these ideas, let’s review a few hypothetical scenarios.

First, consider three portfolios A, B, and C from the above table. Each one alternates between a positive year and a negative year. In all three cases, the average return is a positive 2.5%, as the magnitude of the positive years is greater than the magnitude of the negative years. As an investor, which portfolio would you prefer? The average annual returns are the same, but the long-term realized returns are very different. As the nearby chart shows, the higher volatility of Portfolio C actually produces negative long-term results, because it takes more than a 35% gain to recover from a 30% loss. The moderate Portfolio B produces no gains for the same reason. The superiority of Portfolio A is not obvious in the annual data.  It only becomes obvious after several market cycles. Portfolio A does a much better job limiting downside volatility, which serves the long-term investor well.



Next, consider these two portfolios. Portfolio A alternates between rising 100% and earning 0% return. Portfolio B earns 50% consistently. Again, both have the same average annual return. Which would you prefer?


Here again, the correct answer is to pick the portfolio with the lower volatility. Portfolio B actually has (an unrealistic) zero volatility and is thus superior, as shown by the Growth of $1 chart.


Lastly, just to use a more realistic return stream, consider these two portfolios.


In this case, there is a difference in the average annual returns. Portfolio A has higher average returns. Portfolio B has similar returns but lower volatility, and that is key.



The point for investors is to focus on volatility, especially downside volatility of their portfolios, not annual returns. That can be more difficult than it sounds, and a topic for another day.

Sunday, December 21, 2014

Bang Your Drum




I've been thinking about the things that
Are stuck inside my head and I can't get them out
And I been waking at four in the morning
I don't why I can't get back to sleep again tonight

Keep banging on, banging on your drum
Keep banging on, and your day will come
Keep banging on, banging on your drum
And they will hear you

I am wishing that I was making
A list of all the good things I've ever done with my life
And everybody thinks I have wasted
Wasted every chance I ever had to be somebody

Keep banging on, banging on your drum
Keep banging on, and your day will come
Keep banging on, banging on your drum
And they will hear you

No one lives forever
Business here I've got to finish
You won't make your mind up
You won't make your mind up for me

No one lives forever
There's business here you've got to finish
You won't make your mind up
You won't make your mind up for me

Hang out off your window
Shout it down to the people below
Everyone will hear you
They are going to hear you

Keep banging on, banging on your drum
Keep banging on, and your day will come
Keep banging on, banging on your drum
And they will hear you

Keep banging on, banging on your drum
Keep banging on, and your day will come
Keep banging on, banging on your drum
And they will hear you

Keep banging on, banging on your drum
Keep banging on, and your day will come
Keep banging on, banging on your drum
And they will hear you

Wednesday, November 26, 2014

Review: The Thinking Poker Diaries, Volume 1

Many people learn to play poker around the kitchen table. They observe someone they know and trust, such as a family member or friend, playing the game and their interest is piqued. Around a friendly game or a casual conversation, new players learn the basic structure and infer key concepts. In order to improve, players often turn to books, training videos, discussions with other players, and coaching from advanced players or professionals. These various resources require significant money, time, and effort, and they are rarely entertaining. There is a better way.

Now, you can say you have a friend who is a professional. Andrew Brokos is a professional poker player, author, coach, and video instructor. He publishes the popular blog ThinkingPoker.net and he is co-host with Nate Meyvis on the Thinking Poker Podcast. His new e-book, is an enjoyable poker resource for novices and experienced players alike.

In The Thinking PokerDiaries, Vol. 1, Brokos shares an entertaining tale of how he went from financially insecure novice to independent professional poker player.  From college games to online tournaments, and ultimately to the main event of the World Series of Poker (WSOP), Brokos has played at every level. Here he shares the background sought by novices and casual fans, along with the complex strategies he employed to expand his game and become successful. Along the way, we sit at his side as he plays against some of the top professionals in the game.

This is a very good effort. Brokos writes as if the reader is a family member or high school friend. The book draws heavily from personal communications Brokos sent to friends and family explaining what the WSOP is and how he was performing in 2006. This makes for an enjoyably casual, yet technically sound depiction of dramatic, high level poker games. To keep the book relevant and current, he’s back-filled the story with plenty of hands he played in the actual event and the strategy involved at various stages in the tournament.  Even readers who have followed Brokos for years will learn something new, either about poker strategy or about his life, by reading this e-book.

I have no major gripes with the book. There are a very few errors, but they don’t impact the story. At times I thought the flow of the book was a bit jumpy, as Brokos takes us from a particular moment in the tournament to a strategy or background segment and then back to the action. However, the story line was not really impacted, it was really that I preferred to keep reading the action to see how far he would advance. The narrative is such that one almost wants to skip some of the strategy to see how things turn out. Considering the price level (and watch for a sale), this is easily one of the best values in the poker literature.

I won’t spoil the ending, but many already know Brokos has a very impressive record at multiple WSOP main events since 2006. That should provide ample material for subsequent volumes of the Thinking Poker Diaries.