AZ Corporation Commission's Completely Inadequate Response to My Critique on their Site Security

A while back I wrote about my concerns about the total absence of any security at all in the Arizona corporate annual reporting system

I started the annual reporting process by just typing in the name of my company and getting started.  There was no password protection, no identity check.  They had no way of knowing I had anything to do with this corporation and yet I was answering questions like "have you been convicted for fraud."  The potential for mischief is enormous.  One would have to get the timing right (an annual report must be due before one can get in) but one could easily open the site on January 1 and start entering false information in the registrations for such corporations as Exxon and Wal-Mart.

See for yourself.  Here is their web site.

I showed how one could open and file the report for a company like Wal-Mart, changing all their officers names, and confessing to all sorts of imagined corporate crimes

Again, note what I am saying.  This is not the result of hacking.  This is not lax security I figured out how to evade.  This is the result of no security whatsoever.  I simply went to the link above, clicked on the Wal-Mart Associates link, and then clicked on the annual report link.  I know from doing my own registration that there is a signature page at the end, but all you do is type in the name of an officer and a title -- data that is right there on the site.  It's like asking you for a password after the site just listed all the valid passwords.

The head of the Arizona Corporation Commission wrote me back. Here is here email in its entirety:

Dear Mr. Meyer:

Thank you for your email regarding the Corporations Division.  The Arizona Corporation Commission is the repository for all business formation documents for corporations and limited liability corporations.  We are in full compliance with state statutes.

Submitting false documents to alter another’s corporate structure or status is a crime and carries a Class 4 or Class 5 penalty.  The Commission or the aggrieved business entity may refer the false filing to the Attorney General’s office for prosecution.  Additionally, the individual business entity may pursue a civil cause of action.  The Commission only accepts on-line charges for a few services such as name reservation or to order a certificate of good standing, and the online payment process is completely secure.

Even though the Commission’s existing security measures comply with the state law and are similar to most other states and other Arizona governmental entities like the County Treasurer’s Office, the Commission is looking at implementing new technology to allow for the online submission of additional services – such as the filing of original Articles of Organization and Articles of Incorporation.  We do intend to provide password protected security features when that new technology is offered to the public.

J. Jerich

Executive Director

Arizona Corporation Commission

I had no doubt that submitting a false annual report for Wal-Mart would be illegal.  Duh.  However, it is just incredibly naive that this is the sole extent of the Commission's security, to prosecute people once the damage is done.  Can you imagine if Amazon had the same security policy - "we are getting rid of passwords because it would be illegal for you to buy something from someone else's account."  I wonder if the commissioners leave their doors unlocked at night, trusting in the threat of future prosecution to deter burglary and mayhem in their homes?

Sue and Settle Update

This is good news - the Oklahoma Attorney General is challenging sue and settle endangered species listings as a violation of the required rules-making process.

Environmentalists are trying to list such ubiquitous species as prairie chickens in order to halt oil and gas development in most of the west.  Presumably, wind farms would be given a special exemption.

 

Trying, And Failing to Get Transparency About the Government Shutdown of Private Park Operators

Hans Bader submitted a FOIA on October 9 about US Forest Service and Dept. of Agriculture decision-making leading up to the unprecedented shutdown of private operations on US Forest Service land.  I have seen the FOIA results and -- almost laughably -- virtually all of the documents relate to the end of the shutdown, and all of the documents are dated after the date of his FOIA.  In other words, the US Forest Service essentially ignored the documents requested by the FOIA request and submitted a stacks of unrelated documents.

More from Mr. Bader here

Our Political Opponents Believe Whatever We Say They Believe

I can think of two groups with whom I have some sympathy -- the Tea Party and climate skeptics -- who share one problem in common:  the media does not come to them to ask them what their positions are.  The media instead goes to their opposition to ask what their positions are.  In other words, the media asks global warming strong believers what the skeptic position is, without ever even talking to skeptics.  It should be no surprise then that these groups get painted with straw men positions that frequently bear no resemblance to their actual beliefs.

Paul Krugman provides an excellent example.  He writes:  (shame on the blog author for not linking Krugman's article, here is the link)

Or we’re told that conservatives, the Tea Party in particular, oppose handouts because they believe in personal responsibility, in a society in which people must bear the consequences of their actions. Yet it’s hard to find angry Tea Party denunciations of huge Wall Street bailouts, of huge bonuses paid to executives who were saved from disaster by government backing and guarantees.

This is really outrageous.  I am not a Tea Partier because they hold a number of positions (e.g. on immigration and gay marriage) opposite of mine.  But to say they somehow have ignored cronyism and bailouts is just absurd.  TARP was one of the instigations, if not the key instigation, for the Tea Party.  As I have written any number of times, the Tea Party and Occupy Wall Street actually shared a number of common complaints about bank bailouts and cronyism.

David Harsanyi has more here.

By the way, it is Hilarious to see Krugman trying to claim the moral high ground on Cronyism, as he has been such a vociferous proponent of the Fed balance sheet expansion, which will likely go down in history as one of the greatest crony giveaways to the rich in history.

Obama's Demand for Wage Rules for Salaried Workers Will Have Far More Impact Than Proposed Minimum Wage Changes

The $10.10 minimum wage discussion has gotten a lot of attention.   But in 2011 only 3.8 million workers made at or below the minimum wage, and of these, at least half earn substantially more in reality through tips.

Obama's announcement yesterday that he wanted to substantially change the way salaried workers will likely have far more negative impacts on employment than his minimum wage proposals.

President Barack Obama is expected to order a rule change this week that would require employers to pay overtime to a larger number of salaried workers, two people familiar with the matter said.

Currently, many businesses aren't required to pay overtime to certain salaried workers if they earn more than $455 a week, a level that was set in 2004 and comes to roughly $24,000 a year. The White House is expected to direct the Labor Department to raise that salary threshold, though it is unclear by how much.

Ross Eisenbrey, vice president of the liberal Economic Policy Institute, and Jared Bernstein, a former White House economist, recently proposed the limit be increased to $984 a week, or roughly $50,000 a year.

"That would mean between five- and 10-million people could be affected, but they might choose a lower number," Mr. Eisenbrey said about the White House plans.

5-10 million is potentially 3x or more the people affected by a minimum wage change.  But in some sense, this still underestimates the impact.  Here is one example.  Last year the average starting salary of college graduates is about $45,000.  The median is likely lower.  This means that over half of all college graduates going into the work force will be taking hourly jobs that used to be salaried.   Teachers will be hourly.  Budget analysts will be hourly.  Etc.

So all these folks are saying - Yeah!  I get overtime!   Wrong.  They will be eligible for overtime.  But companies will quickly restructure their work processes to make sure no one works overtime.  And since their new hires are working just a straight 40 hours (with mandatory unpaid lunch break time in CA), they will likely pay less.   If I am paying $40,000 a year for someone who will work extra hours for me, I am not going to pay that amount to someone just punching a time clock.  And the whole psychological relationship is changed - a salaried person is someone on the management team.  A person punching a timeclock may not be treated the same way.

Further, when someone gets switched from salary to hourly, they lose a minimum pay guarantee.  When I get a $3,500 a month offer, I know that no matter how slow things are, until I am fired I get $3500 a month.  There is a floor on my earnings.  As an hourly worker, my hours can be adjusted up or down constantly.  There is no floor at all.

Oh, and by the way, remember Obamacare?  The PPACA penalizes companies who do not provide a health plan that meets certain (expensive) criteria.  But that penalty is not applied for workers who are "part-time" or work less than 30 hours a week.  Salaried workers are automatically full time.  But once you convert all those people to hourly and make sure they are working no more than 40 hours a week, is it really so large a step to getting them under 30 hours a week?

PS-  Well, for those who think schools assign too much homework, this could well be the end of homework.  The most dangerous possible thing with hourly workers is to give them the ability to assign themselves unlimited overtime.  Teachers could do this at home with grading papers.  If I were a school, I would ban teachers from doing any grading or schoolwork prep at home -- after all, it's hourly and probably overtime and they could work unlimited hours at home and how would you get it under control?  The only way to manage it would be to ban it entirely.

PPS- What about travel?  Would you ever let workers paid hourly travel?  You would have to pay all the travel time and maybe part of the hotel time and there would be huge potential for ending up with overtime bills so better to just ban travel all together.  I know this seems knee-jerk to ban something that might impose a lot of extra labor costs seems extreme, but just look at California.  In California, employees have the right to a half-hour lunch break without work.  They can work through lunch if they choose, but courts have imposed enough onerous reporting standards around this that most companies (like mine) have just banned working through lunch.  It is a firing offense in my company, and in many others in CA, to be caught working during lunch.  We are going to see the same thing working from home.  In fact, we already see this, as there are class actions right now against companies who provided employees with cell phones saying that giving them a cell phone put them "on call" and subject to overtime hours that had to paid at home.  Companies are now making it a firing offense to take one's company cell phone home.

Sorry this post is so disorganized, but this initiative caught be by surprise and I have not been thinking about it for very long.  I will try to work out a more rigorous article in the next few weeks.

The Regulation Singularity

Yesterday, I came home exhausted.  I have been working late nearly every night for weeks, at a time of year when most of my business is not even open yet (the business is seasonal).  I realized to my immense depression that I have been spending all my time on regulatory compliance.  I have not been pitching new clients or bidding on new prospects or making investments or improving our customer service processes -- though I have ideas for all of these.  I have been 100% dedicated through 14 hour days to just trying to keep up with and adapt to changing government rules.

Break rules, changing minimum wages, heat stress plans, mandatory sexual harassment training, OSHA reporting, EEO reporting, Census reporting, and most recently changing rules on salaried workers that Obama just waived his wand and imposed -- this is what has been consuming me.  I have been trying to roll out a new safety program to the field and can't do it because I keep having to train for one of these new requirements (one learns there is only a limited number of things one can simultaneously roll out to front-line staff).

At some point regulation will accrete so fast that it will be impossible to keep up.  I am going to call that the Regulation Singularity, and for businesses my size, we are fast approaching it.

Prominent libertarian think tanks often rank state business climate by their tax regimes.  I am all for low, sensibly-structured taxes.  But for most of my time, taxes are irrelevant.  We are shutting down businesses left and right in California and it has zero to do with taxes.

Things I Did Not Know About Compelled Testimony

Ken White at Popehat offers some useful insight to non-lawyers among us about compelled testimony (in the context of the Louis Lerner/IRS saga)

Some people have argued that Lois Lerner should be compelled to testify, either by court order or by grant of immunity. Lerner and her lawyers would love that, as it would make prosecuting her for any suspected wrongdoing incredibly difficult.

Compelled testimony is radioactive. If a witness is compelled to testify, in any subsequent proceeding against them the government has a heavy burden to prove that no part of the prosecution is derived from the compelled testimony, which is treated as immunized. This is called theKastigar doctrine:

"Once a defendant demonstrates that he has testified, under a state grant of immunity, to matters related to the federal prosecution, the federal authorities have the burden of showing that their evidence is not tainted by establishing that they had an independent, legitimate source for the disputed evidence." 378 U.S. at 378 U. S. 79 n. 18. This burden of proof, which we reaffirm as appropriate, is not limited to a negation of taint; rather, it imposes on the prosecution the affirmative duty to prove that the evidence it proposes to use is derived from a legitimate source wholly independent of the compelled testimony.

If I read this right, if the House were to compel her to testify, they might as well grant her immunity and be done with it.

Further on in the post, Ken points out an issue that I have been wondering about myself -- Those who want Lerner to testify are concerned with government arbitrary abuse of power for political purposes.  Given that, how can these same folks have any doubt as to why Lerner might plead the Fifth in front of a hostile and partisan House committee

I've been seeing a lot of comments to the effect of "why should Lois Lerner take the Fifth if she has nothing to hide?" Ironically these comments often come from people who profess to oppose expansive government power, and from people who accept the proposition that Lerner was part of wrongdoing in the first place — in other words, that there was a government conspiracy to target people with the machinery of the IRS for holding unpopular political views. Such people do not seem to grasp how their predicate assumptions answer their own question.

You take the Fifth because the government can't be trusted. You take the Fifth because what the truth is, and what the government thinks the truth is, are two very different things. You take the Fifth because even if you didn't do anything wrong your statements can be used as building blocks indishonest, or malicious, or politically motivated prosecutions against you. You take the Fifth because if you answer questions truthfully the government may still decide you are lying and prosecute you for lying.

Pardon me: if you accept the proposition that the government targets organizations for IRS scrutiny because of their political views, and you still say things like "why take the Fifth if you have nothing to hide", then you're either an idiot or a dishonest partisan hack.

If you want to get bent out of shape about something, you are welcome to wonder why Lerner is being investigated, apparently, by the hyper-partisan civil rights division of Justice rather than the public integrity section.  That, combined with President Obama's pre-judging of the DOJ's conclusions, is more of a red flag than Lerner's taking the Fifth.

Remember, Martha Stewart did not go to jail for securities fraud of any sort.  She went to jail for statements she made during the government investigation.

Even the Feds Give Up Under The Weight of Regulation

Many on the Left often deride the notion that government regulation really affects business behavior and reduces business activity.  But it turns out that even the Feds themselves throw up their hands and give up in the face of trying to deal with their own regulations

Government estimates suggest there may be 77,000 empty or underutilized buildings across the country. Taxpayers own them, and even vacant, they’re expensive. The Office of Management and Budget believes these buildings could be costing taxpayers $1.7 billion a year.

…But doing something with these buildings is a complicated job. It turns out that the federal government does not know what it owns.

…even when an agency knows it has a building it would like to sell, bureaucratic hurdles limit it from doing so. No federal agency can sell anything unless it’s uncontaminated, asbestos-free and environmentally safe. Those are expensive fixes.

Then the agency has to make sure another one doesn’t want it. Then state and local governments get a crack at it, then nonprofits — and finally, a 25-year-old law requires the government to see if it could be used as a homeless shelter.

Many agencies just lock the doors and say forget it.

Triggering and the Return to Victorian Perceptions of Women

When Mathew Vassar built the original main building at Vassar college, he made the hallways of this college for women extra wide.  While there is an apocryphal story that he did this so he could later convert the college to a brewery if the whole educating women thing did not work out, the actual explanation is a window on Victorian-era thinking about women.

People of the time were convinced that women were subject to hysteria, and that one way to potentially defuse such hysteria was through exercise.  The extra-wide hallways were so women in their hoop skirts could walk back and forth in bad weather.  (Interestingly, Vassar and other women's colleges also played a role in the early history of baseball, fielding teams for a number of years until men decided that the unseemlyness of women playing sports trumped the fight against hysteria).

Whenever this story is told, we laugh today at Victorians' condescending, even misogynist views of women as subject to hysteria or fainting or the vapors when encountering the slightest bit of stress.

Which is why I never would have believed that it would be 21st century feminists dredging up these old attitudes with fears of "triggering."  Women are once again being treated as if they will get the vapors if difficult topics are discussed in class.  I suppose we are now supposed to leave these to men in the smoking room after dinner?

In the future, historians will draw a line somewhere in the last decade to mark the point where feminism switched from empowering women to treating them like children.

Disclosure:  My wife attended Vassar College and is still convinced the brewery explanation is the correct one.

Jan Brewer Decides to Obey the Law

Jan Brewer, Arizona governor by grace of Janet Napalitano going to Washington, said she would not run for a third term.  This is actually hilarious, because by our state Constitution she may not serve a third term.  This announcement would be roughly equivalent to Obama announcing next year he was not seeking a third term as President.  It is simply absurd, and an indicator of the low quality of politicians we get in this state, that she actively entertained the extra-Constitutional notion of a third term for so long.

Tesla: The Dr. Jekyll and Mr. Hyde of Cronyism

On the one hand, Tesla feasts on government subsidies and giveaways, e.g. here.

On the other hand, Tesla fights against crony protections of incumbent businesses, e.g. here.

Small Homage to Ayn Rand -- Exiting A California Business on September 2

Today I gave notice that I was exiting another park operations contract in California.  This location has always been marginal, but we kept holding out hope of improving it.  But with rising CA minimum wage, the PPACA, and onerous CA labor and liability laws, operating in CA is so hard that I have to make good money or get out.

I had to pick a termination date at the end of the summer.  I was going to choose Labor Day but looking at the calendar, it gave me a smile to slip the date to September 2, a date that should be familiar to anyone who is a real Atlas Shrugged geek.  It is an inside joke guaranteed not to be recognized by any of the government agency managers we work with there.

About those "Rising Transit Use" Numbers

From Randal O'Tooole

The American Public Transportation Association (APTA) argues that a 0.7 percent increase in annual transit ridership in 2013 is proof that Americans want more “investments” in transit–by which the group means more federal funding. However, a close look at the actual data reveals something entirely different.

It turns out that all of the increase in transit ridership took place in New York City. New York City subway and bus ridership grew by 120 million trips in 2013; nationally, transit ridership grew by just 115 million trips. Add in New York commuter trains (Long Island Railroad and Metro North) and New York City transit ridership grew by 123 million trips, which means transit in the rest of the nation declined by 8 million trips. As the New York Timesobserves, the growth in New York City transit ridership resulted from “falling unemployment,” not major capital improvements.

Meanwhile, light-rail and bus ridership both declined in Portland, which is often considered the model for new transit investments. Light-rail ridership grew in Dallas by about 300,000 trips, but bus ridership declined by 1.7 million trips. Charlotte light rail gained 27,000 new rides in 2013, but Charlotte buses lost 476,000 rides. Declines in bus ridership offset part or all of the gains in rail ridership in Chicago, Denver, Salt Lake City, and other cities. Rail ridership declined in Albuquerque, Baltimore, Minneapolis, Sacramento, and on the San Francisco BART system, among other places.

It looks like Chris Christie was doing his part to increase transit ridership in New York.

By the way, the phenomenon of small increases in light rail use offset by large drops in bus ridership is extremely common, almost ubiquitous.  Cities build flashy prestige rail projects that cost orders of magnitude more to build and operate than bus service, and are much less flexible when the economy and commuting patterns change.  Over time, bus service has to be cut to pay the bills for light rail.  But since a given amount of money spent on buses tends to carry more than 10x the passenger miles than the same amount spent on light rail, total ridership drops even while spending rises.  That is what is going on here.

Light rail is all about politician prestige, civic pride, and crony favoritism for a few developers with land along the route.  It is not about transit sanity.

These Are the Same Folks Who Denounced the Koch Brothers' Political Participation the Other Day

An excellent editorial from Tim Carney

Democrats occupied the Senate floor all night Monday, talking aboutclimate change. They didn't try to advance any legislation, and they didn't even try very hard to get media attention.

“The members know that serious climate change legislation stands no chance of passage in this divided Congress,” wrote the New York Times' climate-change reporter, Coral Davenport. Beyond that, Democrats know that action on climate legislation would help Republicans take the Senate in 2014.

So why occupy the Senate floor talking about the issue? In short: Faith, identity and cash.

The liberal climate cause is easier to understand if you think of it as a religion. Monday’s talkathon sounded at times like a religious revival. Senators spoke about the faithful who “believe in wind” and “believe in renewable” energy. Sen. Chris Coons, D-Del., said climate for him is “a faith issue.”

One doctrine in the Church of Climate is sola fide. In the words of Reformation theology: Justification comes through faith alone. “Good works” are irrelevant....

Beyond exercises in faith and identity politics, the Democratic all-nighter should be understood as a very odd fundraiser. Most fundraisers feature one or two politicians speaking to dozens of donors. Monday night featured a dozen politicians speaking to one donor: Energy billionaire Tom Steyer.

Steyer, having made his riches partly in green energy and fossil fuels, has decided to spend his billions electing Democrats who will pass climate legislation. He says he’s divested from his energy holdings, signifying his intentions are sincere.

Steyer spent $8 million to help elect Terry McAuliffe governor of Virginia last fall. “Steyer will inject millions into assorted races” in 2014, reports Joe Hagan in Men's Journal. Steyer has made it very clear what a politician needs to do to get his money: Make a big deal about climate change.

By the way, kudos to Carney for getting this correct.  It seems like an easy nuance to get accurately, but no one in the media ever does

Democrats called Republicans “deniers” 28 times during the talkathon. Majority Leader Harry Reidframed his speech this way: “Despite overwhelming scientific evidence and overwhelming public opinion, climate change deniers still exist.”

There’s an ounce of truth to this attack: Some Republicans wrongly deny that carbon dioxide and similar gasses exert a net upward pressure on atmospheric temperature, and that this has affected the climate.

But liberals hurl the term “climate denier” at anyone who doubts the hyperbolic catastrophic predictions of Al Gore, posits that non-manmade factors (like the sun) may also drive climate change, or opposes Democrats policies — the same policies Democrats aren’t actually trying to pass.

I have actually learned to embrace the "denier" label.  When it is applied to me, I agree that I am, but that one has to be careful what exact proposition I am denying.  I don't deny that the world has warmed over the last 100 years or that man-made CO2 has contributed incrementally to that warming, both now and in the future.  What I deny is the catastrophe.

The World's Most Famous Investor Is Now Investing in...

...government access.  Clearly Warren Buffet saw the writing on the wall in 2009, that the way to make money in the US was no longer to build products and factories but to invest in lobbying to get crony advantages and giveaways.

click to enlarge

This Administration and Senate makes all kinds of progressive noises, but all the while they are running perhaps the greatest expansion of cronyism in US history.  And the smart money knows it.

 

Arizona Corporation Commission Web Site is Criminally Insecure

Today I had to do my annual renewal of my corporate registration in Arizona.  As in most states, this involves a bit of information foreplay followed by the purpose of the exercise -- sending in a check to the corporation commission.

But here is the extraordinarily scary part -- I started the annual reporting process by just typing in the name of my company and getting started.  There was no password protection, no identity check.  They had no way of knowing I had anything to do with this corporation and yet I was answering questions like "have you been convicted for fraud."  The potential for mischief is enormous.  One would have to get the timing right (an annual report must be due before one can get in) but one could easily open the site on January 1 and start entering false information in the registrations for such corporations as Exxon and Wal-Mart.

See for yourself.  Here is their web site.  Below is a screen shot of the site letting me in to edit one of Wal-Mart's corporate registrations in Arizona:

click to enlarge

 

Again, note what I am saying.  This is not the result of hacking.  This is not lax security I figured out how to evade.  This is the result of no security whatsoever.  I simply went to the link above, clicked on the Wal-Mart Associates link, and then clicked on the annual report link.  I know from doing my own registration that there is a signature page at the end, but all you do is type in the name of an officer and a title -- data that is right there on the site.  It's like asking you for a password after the site just listed all the valid passwords.

If I disliked Wal-Mart, I could put all kinds of crazy garbage in here.  I did not go further, because I would have had to answer these questions to proceed and I had no desire to mess with another company's critical data, but if I had gone further I could have changed their mailing address, the names of their officers, etc. -- all I had to do was just pay the $60-ish registration fee for them and they would have a big mess on their hands to sort out.   If I had access to a fake or stolen credit card and a public computer, I could have done it all without any hope of being traced.

By the way, from my experience, this is not unique to Arizona.  This criminally lax behavior seems to be the norm in most states.

I have submitted this all as a complaint to the state, so far with no response.  If anyone in AZ knows how I can get someone's attention with this, let me know.

Uggh. Can We Please Not Make These Sort of Truncated-Scale Charts?

Truncating the Y-axis scale on charts to exaggerate apparent trends makes me crazy.  Example

click to enlarge

By the way, while I am complaining, there is ZERO reason in this chart to show each bar in a different color.  The color adds no value and only serves to distract.

 

When the Giant Alien Ship Arrives to Find Out What Happened to the Dolphins Who Were Marooned on this Planet Millennia Ago, This Guy May Have Saved the Human Race

Two Business Realities I Underestimated in My Youth

1.  Its all about having the right people.  When I was in b-school, I honestly laughed at statements like this.  I thought it was new age bullsh*t.  I was totally enamored of quantitative analysis and business strategy.  After running a business for 10 years, I now know that people are everything.  Everything - our ability to grow, to handle difficult compliance issues, to work safely, to reduce costs - relies entirely on my finding the right people in the right spots.  Everything else is a rounding error.

2.  There is only a very limited number of things you can deploy to the field at any one time.  It took me a really long time to realize that my mind - in fact, any manager's mind - likely works way faster than the bandwidth that exists to actually deploy new things to the field.  Putting customer initiative X on hold because compliance issue Y needs to be deployed first is really frustrating, but trying to do too much means nothing gets done.

I would observe relative to #2 above that over the last few years the combination of the Feds + legislatures like in CA are generating new compliance issues faster than we can deploy solutions and train for them.   In California, we have put most all new customer initiatives on hold because we are simply overwhelmed with management and employee training relative to various local government mandates.

Conflict of Interest

By the way, there is a reason for this choice (from an article on why unions are worried about the PPACA)

The second problem is that the 40 percent excise tax on especially expensive plans — the so-called Cadillac tax — is going to hit union plans especially hard. Unlike most people negotiating compensation, union negotiators make an explicit trade-off between wages and other benefits, and the benefit that they seem most attached to is generous health plans. Union plans are made more expensive still because union membership is heavily skewed toward older workers. They are thus very likely to get hit by the Cadillac tax, which takes effect in 2018.

The preference for health benefits over cash compensation makes some sense for tax reasons (as it shifts taxable income to nontaxable income).  And at some level it is typical of union thinking, which is often driven by seniority and by benefits for older workers over younger workers.  But there is another reason for this that is almost never stated -- the unions themselves run many of these health plans.  And because it is priced as a monopoly, the unions often earn monopoly rents on these plans, and use management of large health plans to justify much higher compensation levels for union leaders.  In Wisconsin, ending public union strangleholds on health plan management immediately saved the state and various local school districts millions of dollars when they were allowed to competitively bid these functions for the first time.

Politicians are Such Hypocritical Schmucks

Via Kevin Drum

The intelligence community can spy on millions of Americans and Dianne Feinstein yawns. But spy on Dianne Feinstein and you're in trouble.

SAT Variation by Income: The Test Prep Fig Leaf

I was not at all surprised to see that average SAT scores varied strongly by income bracket.  What has surprised me is how quickly everyone has grabbed for the explanation that "its all due to test prep."  It strikes me that the test prep explanation is a sham, meant to try to hide the real problem.

First, Alex Tabarrok says that most of the research out there is that test prep explains at most 20% of the variation by income, and probably less.  This fits my experience with test prep.  I have always felt that 90% of the advantage of test prep was just taking a few practice tests so when the actual test days come, the kids are comfortable they understand how each section of the test works and are not thrown by the types of problems they will face.  My feeling is that most of what you can learn in fancy test prep courses is in those books they sell for about $40.  We sent our kids to a course that cost a lot more than $40, but frankly I did not do it because I thought they would get any special knowledge they could not get in the book, but because I was outsourcing the effort to get them to do the work.  Seriously, I think a parent with $40 and the willingness to make sure their kids actually goes through the book would get most of the benefit.

Which raises the question of whether test prep is correlated to income because of its cost, or whether it is correlated to income because high income folks are more likely to place value on their kids testing well and make them do the prep work.  We will come back to this in a minute.

So if its not test prep, what does drive the difference?  I don't know, because I have not studied the problem.  But I can speak for our family.  My kids do well on SAT-type tests because they go to a tough rigorous private school.  Let's take one example.  When my daughter was a sophomore in high school, she scored a perfect 80 (equivalent of the SAT 800) on the writing and grammar section of the PSAT.  Now, my daughter is smart but no Ivy-bound savant.  She took no prep course.  My daughter aced the PSAT grammar because her freshman teacher drove those kids hard on grammar.  I am talking about a pace and workload and set of expectations that kids in our junior high school start talking about and dreading two years before they even get to the class, and this at a school already known for a tough work load.

This teacher is legendarily fabulous, so obviously that is hard to replicate everywhere.  But she is fabulous because my kids actually came away excited about Homer and other classics.  This is what I pay private-school money for.  But what she did in grammar, what got my daughter her perfect score, could be emulated by about any competent teacher...theoretically.  But in fact it can't happen because such an approach could never survive in a public school.  The work expectations are way too high -- parents and students would revolt.  It only works for those who self-select.

Well, it only works today for those who self-select and can afford a private school.  Unfortunately, we have an education system where everyone is forced to pay tuition to what is at-best a teach-to-the-mean school.  If one wants more, they have to be wealthy enough to pay tuition to a second school.  Which is why school choice makes so much sense.  Why should only the wealthy  have the ability to self-select into more intensive programs?  BUt this is a conclusion most the education establishment is desperate for people not to reach.  Thus, the hand-waving over test prep.

Of course, there are a million other wealth, genetic, and parental effects that come into this equation.  For example, my kids read for fun, probably in large part because my wife and I read for fun.  How many kids read 10+ books outside of school each year?  They do this not because my kids are awesomer than other kids, but simply because that was the expectation they grew up with, that we spend free time reading books.   Other families might spend their free time, say, doing home improvement projects such that their kids all grow up great woodworkers.  I am not sure one set of activities is superior to another, but my kids end up testing well.  Of course, I am not sure they can use a screwdriver.  Seriously, over Christmas break I asked my 20-year-old son to pass me the Phillips head screwdriver and he had no idea which one that was.

I was thinking about the question above of how one separates out parental expectations from all the other effects (like parental DNA and income and quality of schools, etc.)  I interview high schoolers for Princeton admissions, so I have come to learn that some public high schools have advanced programs, to allow kids some self-selection into a more rigorous program within the context of public schools (this is usually either an AP program, an honors program, or an IB program).  By the way, the existence of these programs at public schools correlates pretty highly with the average income of that school's district.

Here would be an interesting study:  Take high schools with some sort of honors program option.  We want to look at the income demographics of the kids who chose the honors program vs. those who choose the standard program.  We would therefore want to look only at high schools that take all comers into the honors program -- if they have some sort of admissions requirement, then this would screw up our study because we want to test solely for how demographics affect the choice to pursue a more rigorous, college-oriented program.  I would love to see the results, but my hypothesis is that test-prep is a proxy for the same thing -- less about income per se and more about parental expectations.

 

Things That Would Have Gotten Me Fired in the Corporate World

This week's episode:  Spending enormous resources on a program to reduce X, and then not tracking (or even putting in place a mechanism to track) whether X was reduced as promised.   James Taranto quoting the National Journal quoting Administration officials:

The Congressional Budget Office estimates that the health care law will reduce the number of uninsured people by about 24 million over the next few years, and that about 6 million previously uninsured people will gain coverage through the law's exchanges this year. So, is enrollment on track to meet that goal? Overall enrollment is looking pretty decent, but how many of the people who have signed up were previously uninsured?

"That's not a data point that we are really collecting in any sort of systematic way," Cohen told the insurance-industry crowd on Thursday when asked how many of the roughly 4 million enrollees were previously uninsured.

Nicely done.  The PPACA was passed first and foremost to bring insurance to the uninsured.  I always thought that the Left misunderstood (accidentally or on purpose, I do not know) the nature of the uninsured and thus overestimated what impact the PPACA would have in this regard.  But one way or another, you would track the impact, right?  I can just imagine trying to explain to my old boss Chuck Knight why we spent billions to gain new customers for a product but didn't track how many new customers we gained.

Postscript:  Here is my prediction -- The Administration will declare that no one had "real" insurance (as they define it) so everyone in the exchange was previously uninsured.

Can One Be A Principled Moderate? And What the Hell Is A Moderate, Anyway?

Sorry, this is one of those posts where I am still struggling to figure an issue out, so bear with me if we wander around a bit and the ideas are a bit unfinished.

Kevin Drum and other progressives have been bending over backwards to argue that the now three year delay in implementing PPACA standards for private insurance policies is no big deal.

Really?  The PPACA is likely, for Progressives, to be the most important piece of legislation passed during this Administration.  Hell, based on the discussion when it was passed, for many it is likely the most important piece of legislation passed in the last three or four decades.  And when Republicans suggested delaying these same rules and mandates, e.g. during the government shutdown, they freaked, arguing that people should not have to go another day with their old crappy health care policies.

But now they just roll over and say, yeah, ho hum, this thing that everyone supposedly wanted is a political liability so its fine to delay it, no big deal.

If this were a signature piece of libertarian legislation (yeah, I know its hard to imagine such a thing) that was not being implemented by somebody I voted for and supported, I would be pissed.  I would be raking the President over the coals.

This difference in outlook may be why the Republican leadership hates the Tea Party.  The Tea Party gets pissed when folks they elect punt on the ideological goals they got elected to pursue.  They have no tribal loyalty, only loyalty to a set of policy goals.  The key marker in fact of many groups now disparagingly called "extremists" is that they do not blindly support "their guy" in office when "their guy" sells out on the things they want.

I have friends I like and respect -- smart and worldly people -- who are involved in a series of activities to promote political moderation.  What I have written in this post is the core of my fear about moderation -- that in real life calls for moderation are actually calls for loyalty to maintaining our current two major parties (and keeping current incumbents in office) over ideas and principles.

Which leads me to an honest question that many of you may take as insulting -- can one be a principled moderate?  I am honestly undecided on this.  But note that by moderate I do not mean "someone who is neither Republican or Democrat," because I fit that description and most would call me pretty extreme.  So "fiscally conservative and socially liberal" is not in my mind inherently "moderate".  That is a non-moderate ideological position that is sometimes called "moderate" because it is a mix of Republican and Democrat positions.  But I would argue that anyone striving to intellectual consistency cannot be a Republican or Democrat because neither have an internally consistent ideology, and in fact their ideology tends to flip back and forth on certain issues (look at how Republican and Democrat ideology on Presidential power, for example, or drone strikes changes depending on whose guy is in the Oval Office).

Moderates in my mind are folks willing to, or even believe it is superior to, take average positions, eg. "the PPACA just went too far and we should have had a less-far-reaching compromise" or "free trade agreements go too far we need a mix of free trade and protectionism".  They value compromise and legislative action (ie passing lots of laws in a fluid and timely manner) over holding firm on particular ideological goals.  I guess the most fair way to put it by this definition is they value consensus and projecting a sense of agreement and teamwork over any individual policy goal.

Postscript:  One other potential definition of "moderate":  One could argue that in actual use by politicians and pundits, "moderate" effectively means "one who agrees with me" and "extremist" means "people who disagree with me."  The real solution here may be to accept that "moderate" is an inherently broken word and stop using it.

Update:  There are areas where I suppose I am a moderate.  For example, I think that making definitive statements about what "science" has been "settled" in the realm of complex systems is insane.  This is particularly true in economics.  Many findings in economics, if one were honest, are equivocal or boil down to "it depends."  The Left is insanely disingenuous to claim that the science is settled that minimum wage increases don't affect employment.  But it is equally wrong to say that minimum wage increases always have a large effect on unemployment.  For one thing, almost no one (percentage wise) actually makes the minimum wage so we are talking about changes in the first place that affect only a couple of percent of the workforce, and may be mitigated (or exacerbated) by other simultaneous trends in the economy.  So of course their impact may not be large (in the same way that regulations on left-handed Eskimo Fortran programmers might not have much of an impact on the larger economy).

We have gotten into this bizarre situation that the science is suddenly always settled about everything, where it would be safer to argue that given the complexity of the systems involved the science can't be settled.  I liked this bit I read the other day in the Federalist

One of the more amusing threads that runs through the conversation among the online left is the viewpoint that the science is settled in every arena, and settled in their favor. The data backs the leftward view, and if it doesn’t, there must be a flaw in the data, or in the scientist, or secret Koch-backed dollars behind the research. This bit of hubris leads to saying obviously untrue things – like “every economist from the left and right” says the stimulus has created or saved at least two million jobs. Or that there’s “no solid evidence” that boosting the minimum wage harms jobs. Of course the media knows that these aren’t true, but they largely give these politicians a pass, because dealing in data and with academic research is their turf.

Folks on the Left who want to blame the Tea Party for the destruction of civil discourse need to look at themselves as well, declaring the science settled on everything and then painting their opponents as anti-science for disagreeing.  As I have pointed out before, this sort of epistemology is not science but religion, the appeal to authority backed by charges of heresy for those who disagree.

If I were going to make a political plea, it would not be for moderation but for better more respectful practices in the public discourse.

The Root Cause of Government Corruption is the Power over the Economy We Have Given the Government

Corruption is often blamed on the corruptible.  But corruptible people will always exist (see: entire history of civilization) if the incentives for corruption are sufficient.  Here is another example, from a vote-buying scandal in south Texas:

In the deeply Democratic Rio Grande Valley, the primary is the election that matters. And in local races like county commissioner and district attorney a sliver of votes can make a difference between winning and losing the election. Many times, paid campaign workers called “politiqueras” deliver the votes that put a candidate over the top.

Politiqueras—who are paid to turn out voters, especially in low-income neighborhoods and colonias—have been part of elections in the Rio Grande Valley for decades. But the recent suicide of a school board president in the small town of Donna and the indictment of three politiqueras for allegedly buying votes in a Donna school board election with beer, drugs and cash has rattled the Valley’s political world.

Politiqueras are typically older women with deep ties in the community. They meet with seniors at nursing homes and adult daycare centers and residents in colonias to advocate for their candidates. They come bearing barbecue plates or Mexican pastries and offer voters a ride to the polls, none of which is illegal. But over the decades intense competition in an impoverished region for a limited number of jobs and the power to decide who gets a government contract or a lucrative-paying job has pushed some candidates to cross the legal line and offer cash for votes. “The competition for access to [government] contracts has become intense,” says former Edinburg state Rep. Aaron Peña. “Politiqueras have been pushed further and further to perform in a system that has been corrupted.”