O.P.E.C. and N.C.A.A.

I attended UC Berkeley on an athletic scholarship. It was a four-year deal, paying the then-minimal “fees” (there was no tuition, per se), and providing a $2/hr. job up to a maximum of 80 hours a month, as I recall.* (This was a long time ago, so give an old fart a break.) Out of income I derived from on-campus work I paid room and board plus books, for the most part—I was forced to supplement with very cheap student loans. I considered myself very fortunate at the time: being able to attend a world-renowned academic institution while doing something I loved—pitching a baseball.

The New York Times Joe Nocera draws the comparison between the oil cartel and the NCAA. Both are allowed to dictate terms and conditions via collusion. In the latter’s case, college players earn no salaries, though they add financial value to their respective schools. And this much surprised me: it appears that universities no longer award four-year scholarships; they’re now for one year, subject to renewal. As Nocera puts it:

How can it [the NCAA] justify rolling back a change that would truly help student athletes, such as the four-year scholarship, simply because coaches want to continue to have life-or-death power over their charges?

Nocera offers even harsher criticism:

In fact, the N.C.A.A.’s real role is to oversee the collusion of university athletic departments, whose goal is to maximize revenue and suppress the wages of its captive labor force, a k a the players.

I have mixed feelings about Nocera’s assertions. With few, if any, exceptions football and basketball bring in the revenues; minor sports like baseball are in essence subsidized by the first two. There was no way that the Cal baseball team could have paid its own way. Indeed, there were very few people who attended our home games at Evans Field. I felt bad that they were forced to pay admission, given the mediocre talent on display. Our baseball team wasn’t very good back then. Come to think of it, neither were our football and basketball teams. Cal always did well at water polo, rugby, and crew, though. Three cheers. (By the way, after the university announced last year that it would no longer fund baseball—the program has been around for more than 115 years—a group of former players, now well-heeled, organized an alternative funding mechanism that requires no public money.) If the schools paid their football and basketball players fair market value, there would be less money to subsidize the other sports.

On the other hand, a university clearly profits at the expense of its “captive labor force.” Playing football, at any rate, is a very dangerous proposition. Injuries sustained on the gridiron can leave players permanently disabled. (I witnessed a highly touted freshman lineman suffer what proved to be a fatal injury; he died in hospital the next morning.) For assuming such risks the players receive no insurance or guarantees, especially now that the scholarships are for just a single year.

Former UW president and now NCAA head Mark Emmert reportedly persuaded the board of directors to re-establish the four-year scholarship along with an annual $2,000 stipend. The universities erupted, overriding the board.

I believe that Emmert’s proposal is the least the NCAA can do for its players. Adding insurance, especially for football players, would be another welcome addition.

Notice that I have not weighed in on the much larger issue of college athletics. Should academic institutions even have sports? Regardless of where you stand, I assure you that a “No” would provoke the loudest, angriest chorus of protests since the French Revolution. There’s lots of money at stake along with well-connected alumni who would demand and receive heads on a platter. (When I was at Berkeley it’s new sister at Santa Cruz opened with no intercollegiate athletic program. So no traditions had been established. Lots of frisbees, however.)

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*  The job varied by the season. During football I placed then retrieved the yard markers or swept the slopes, as we athletes dubbed it. We were collecting garbage left in the stands. When baseball season started one of my duties was preparing the pitching mound, to my standards, of course. Best damn mound in the Pac 8. See how old I am? Otherwise I somehow kept busy, although I don’t remember the tasks.

Another punished good deed

Those of us not living under a rock these days can attest to the utter failure of Congress to act responsibly on climate change. Hell, an entire party rejects the science and many in their rank call global warming a “hoax,” perpetrated to attract government subsidies. Shame on Jim Hansen.

So, it is left to the states to tackle the problems. And that’s precisely what California is trying to do, boasting the nation’s best conservation programs and now trying to reduce the carbon content of transportation fuels. But a judge won’t let them. The San Francisco Chronicle:

A federal judge on Thursday blocked California from enforcing its first-in-the-nation mandate for cleaner, low-carbon fuels, saying the rules favor biofuels produced in the state.

Out-of-state entities, including biofuel producers, sued California charging that the law violates the Interstate Commerce clause by giving preference to in-state refiners.

California’s rules for fuels that comply with the law assign a 10 percent advantage to ethanol produced in the state. State officials said the preference was justified because the transportation of ethanol from other states produces climate-changing greenhouse gases, and because California producers have more access than those in the Midwest to low-emission hydroelectric and nuclear power.

Should this ruling stand (California may appeal to the 9th U.S. Circuit Court of Appeals) it may have repercussions in Washington state. In 2005 Olympia passed SB 5111, which provides a tax credit for solar equipment manufactured in the state.

One company making such equipment is Outback Power, which is located near the Arlington airport. Itek Energy is another.

I am unaware of challenges to the Washington law from, say, out-of-state manufacturers of solar equipment. The California judge’s ruling may spark one.

Stay tuned.

So many yards. So few tacklers.

If you like offense last night’s Alamo Bowl was sheer pleasure. Imagine running backs averaging 9.3 yards per carry. Or a quarterback scoring seven touchdowns, four through the air and three on the ground—while racking up over 400 yards passing. And he wasn’t the Heisman winner.

The UW Huskies entered the game against 12th-ranked Baylor decided underdogs. But with sophomore quarterback Keith Price conducting the offense, the outcome was far closer than expected. In losing by 11 points, the Huskies demonstrated that they may vie for the Pac 12 top spot next year, provided Price is surrounded by talent and a serviceable defense, which was completely nonexistent in Texas last night.

I have to wonder what UW defensive coordinator Nick Holt is thinking about this morning, his team having given up 482 yards on the ground, another 295 via the pass, plus 181 return yards—for a total of 958 yards! It’s as if the Huskies were playing matadors, waving their arms then stepping aside to allow three different runners to gain over 100 yards apiece. Olé!

As for Robert Griffin III, the Heisman Trophy winner, he managed “only” 295 yards of passing and one touchdown. Last night his counterpart was in a different, higher class, which bodes well for the Husky football program—unless Price elects to pursue the NFL and Mr. Holt stays.

 

 

Rationality chucked

Thomas Jefferson believed that effective democracy depended on well-informed citizens. He must now be rolling in his grave—again and again. It seems that voters are clueless about issues and candidates’ positions on them. The New York Times:

By virtually all accounts, the 2012 presidential race was to hinge on a restless electorate’s overriding worry, the troubled American economy.

But in three dozen interviews across Iowa and New Hampshire over the past few days, voters readily acknowledged that their decisions would be driven as much by personal chemistry and biography as by political positions and policy.

They were hard-pressed to recall details of the candidates’ plans to reduce taxes, create jobs and shrink the government.

Yet they knew about the marriages and mannerisms, the faith and careers of the candidates, and they brimmed with unvarnished opinions about any trait that strikes them as admirable — or just as likely, annoying.

For those of us concerned about the economy and what to do about it, or global warming and what to do about it, or health care and what to do about it—we’re likely to be stuck with elected officials who won their races because they had good hair or a soothing voice or a nice set of teeth.

Shit.

Not for the Rest of Us

Say that you’re a CEO for a large company. Its board of directors grants you stock options at a lower-than-market price. A few years later you cash in at a higher price, realizing a large windfall. Neat. And your company does even better.

But, of course, you’re not a CEO and you have no stock options. You are part of the Rest of Us, with no comparable means to make a whole lot of money.

In Washington, where executive pay and taxes are highly charged issues, some critics in Congress have long sought to eliminate this tax benefit, saying it is bad policy to let companies claim such large deductions for stock options without having to make any cash outlay. Moreover, they say, the policy essentially forces taxpayers to subsidize executive pay, which has soared in recent decades. Those drawbacks have been magnified, they say, now that executives — and companies — are reaping inordinate benefits by taking advantage of once depressed stock prices.

A stock option entitles its owner to buy a share of company stock at a set price over a specified period. The corporate tax savings stem from the fact that executives typically cash in stock options at a much higher price than the initial value that companies report to shareholders when they are granted.

But companies are then allowed a tax deduction for that higher price.

 That’s from the New York Times. It adds:

The bipartisan Joint Committee on Taxation has estimated that if the senator’s [Carl Levin] proposal were enacted, it would add $25 billion to the Treasury over the next decade.

Lost opportunity

To revive an old joke: On July 25, 2011, Barack Obama gave a fireside address—and the fire went out.

The New Republic‘s Walter Shapiro cogently criticizes Obama for zigging when he should have zagged on the economic bad news. Instead of taking the opportunity during his July fireside chat to invoke some FDR he delivered ho-hum. Shapiro:

For a president elected because of his eloquence, Obama summoned up all the poetry of the collected workout routines of George W. Bush.

Apropos of my previous post, it seems that I’m not the only one with this observation.

As a result, Obama has never been able to convince voters that increasing the deficit during hard times hastens the speed of an economy recovery.

via Digby

How will it end?

I’m not talking doomsday or eschatology here. Rather, how will our current economic doldrums end, if ever?

There are essentially two schools of thought, and both can’t be right. On the one hand, some suggest that the economy will simply right itself after individuals adjust to austerity. We’ll tighten our belts to some point at which people will be hirable and and firms will produce. Implied is a variation of Say’s “law”: supply creates its own demand (largely debunked, by the way). On the other are those who suggest that the economy will likely continue to stagnate unless there is a massive fiscal spending program carried out over numerous years. Essentially we have one school recommending that the federal government do nothing; the other countenancing huge outlays.

If you glance at various economic forecasts, from the IMF (pdf) to Washington state’s Economic and Revenue Forecast Council, you won’t like what you see. Both the global economy and our own state’s will limp along for the indefinite future, although Puget Sound’s is expected to grow faster than the overall economy, thanks to Boeing and Microsoft.

Changes in gross domestic product (GDP) affect changes in the unemployment rate, roughly in tune with “Okun’s law.” You can even try your hand at different growth scenarios to see the impacts on employment by clicking here. You’ll discover that unless GDP grows in excess of three percent a year the unemployment rate remains fixed or even declines at lower growth rates. At 2.5%, for example, the unemployment rate actually rises. And that’s just about where we are now.

We’ve been over this several times, but the problem we face has just about everything to do with diminished aggregate demand. Too few people are buying things. And they’re not buying things because they don’t have a job or they’re paying down debt or they’re putting money in savings or they just don’t have enough discretionary dollars after spending on housing and food. When demand is down or stagnant firms don’t produce as much, which means they don’t need as many workers, which contributes to lower demand. Also, worker productivity continues to rise: firms need fewer workers to produce the same output than before. But the workers aren’t enjoying the fruits of their productivity as much as they used to.

Since 70 percent of the economy is in the form of people buying things, the only way, it seems to me, to boost economic growth is to figure out a way for people to spend money. Could this happen spontaneously? If so, what conditions would have to obtain?

Perhaps we could do a thought experiment. Suppose I own and operate a pizza franchise. Suppose further that sales of pizzas have declined since the Great Recession. In response, I’ve had to cut costs. I don’t need as much dough or sauce or toppings as before. I also don’t need as many employees, so I’ve laid off 10% of my staff. The remaining crew produces enough pizzas to meet demand.

Now we’ll introduce an entirely fictitious element—people who will make pizzas for zero wages and benefits. We can assume that they just like making pizzas for the fun of it. We’ll also assume that these zero-wage individuals know how to make pizzas just like my existing staff.  (Ignore the minimum wage law for this example.) What shall I do?

Well, I could fire my wage-making crew and replace them with the free workers. I lower my costs further. The demand for the pizzas, however, doesn’t change. I have a couple of options. I could lower the price of my pizzas to attract more customers, in which case I could add more free workers. I could skim off the extra profits for myself as I keep the same pizza price. But if I did the latter, I’d have no cause to hire more workers, even free ones, since I’m putting out the same number of pizzas as before. I just don’t need more help.

But we haven’t solved the larger problem; we’ve probably made things worse. The former staff have lost their incomes, so they’re not out buying things anymore. The wage-free workers haven’t increased their income, for sure, so they, too, aren’t spending more than before. If this situation is replicated throughout the economy we can appreciate that aggregate demand falls.

We can infer that if people had more money they’d likely spend more, which boosts the economy. Reducing wages doesn’t get us there. So how might we increase incomes for the Rest of Us, the very people who tend to spend most of what they make, largely because they have to?

Certainly firms won’t voluntarily raise their employees’ wages. If anything, the army of the unemployed puts downward pressure on wages, all other things being equal. Workers could form a union then demand higher wages. That option appears less and less likely with the further decline in union participation rates in the U.S.

If workers and wannabes can’t boost their spending on their own and firms have no need to raise salaries and wages, what other options exist to boost employment and incomes?

We’ve tried monetary expansion, tripling the supply of money, with no appreciable effect on the economy. Why is that? We’re in what economists call a ‘liquidity trap,’ with interest rates at zero and private demand sputtering at best. Nor has the expanded money supply induced inflation, which remains low.

What’s left?

John Maynard Keynes reckoned that the only entity that can come to the rescue under these conditions is the federal government. And the rescue is federal spending, preferably on things we desperately need, like good schools and transportation systems. That is, the government must cause people to be hired.

But doesn’t the federal government have a debt problem? Why add more to the pile?

In the long run, as Keynes said, “we’re all dead.” And in the long run debts do matter. Under extreme conditions, however, like those we are now experiencing, the solution may very well lie in more deficit spending in lieu of raising taxes on the Rest of Us, which would further dampen the economy by leaving us with fewer dollars to spend.

Now is a great time to borrow money, as Paul Krugman tells us in his post today. Money is cheap, for one thing. Moreover, there’s lots of work to do. He includes this chart from the St. Louis Fed:

The type of skills needed for the repair, maintenance, and expansion of public infrastructure is possessed by many of the currently unemployed, a significant percentage of whom used to build houses and downtown skyscrapers. Such construction increases the nation’s real assets adding value to the economy over time. Moreover, the newly hired workers will be spending their money, which yields more pizza-buying, among other things.

Money, then, has to circulate for the economy to grow. But it’s sitting in rich people’s bank accounts, both here and offshore. Idle dollars are a drag. I’m sure that the rich would prefer greater returns on their investments—they’re buying U.S. Treasury bonds for the most part, and that’s because they believe the instruments are safe not lucrative (liquidity preference). Huge federal spending would add more dollars to the economy, which, in turn, could induce the rich to resume their investments on productive activities.

There are those—up there in the first school I mentioned—who believe that such policies are anathema to fiscal and monetary health. They fear higher inflation, mostly. But higher inflation may be just what we need as well. Saved dollars lose their value during periods of inflation. At the same time, higher inflation induces more spending—better buy now than wait for the price to go up.

Nevertheless, I suppose that it’s possible for things to magically right themselves. Yet, we still don’t clearly understand the causes of business cycles, why the economy goes up and down. It’s perhaps helpful to keep in mind Japan’s experience of prolonged economic stagnation. Here is the U.S. over the same period. But look at what’s happened to us since the Great Recession (from the same source as the previous two links):

I would submit that the relatively higher growth from the middle of 2010 to the start of 2011 can be explained to a significant extent by the fiscal stimulus package, ARRA. But that program is almost finished doling out dollars, which likely explains the diminished GDP growth since the second quarter of this year.

Ladies and gentlemen: a GDP of 1.5% isn’t going to make it. Doing nothing, which has been guaranteed by congressional Republicans, will only make matters worse, given the downward trend.

IMHO.