Sonoma Charter Isn't Giving The Trustees A Choice.

Ethnicity of Students, Hispanic or Latino
Sonoma Valley Public Schools
"Education Statistics of California," 

Google Public Data Explorer

available at http://tinyurl.com/ax4z937

Gary DeSmet and Helen Marsh shouldered a heavy load on Tuesday at the Sonoma Valley Unified School District Board of Trustees meeting.  It was well described by Bill Hoban in this article.

I know that the School Board Trustees, in their individual capacities, want to provide every bit of support they can for the families and students at Sonoma Charter. But the Charter School has a racial segregation problem that is obvious, serious, and that has not been addressed after multiple warnings.

The plain fact is that there is simply no way that Sonoma Charter is a neighborhood school with this demographic profile.  At all.  Further, the failure to correct the problem makes Sonoma Charter look more like a relic of the past than a guide to the future of education, an issue that has come up on this blog before.

It is a real failing of the Charter School administration, that they have made it so extraordinarily difficult for any Trustee, at this point, to vote to renew the charter.

I am afraid for the Charter School that they have reached the point where there are now going to be consequences, and that this is going to cause real hardship for many families and students.  But I think the Board of Trustees, even though I am sure they want to support the School, have simply been put in an untenable position, and that they cannot provide more public money that will be used to allow this situation to continue.

... While the ATF Moves on Big Data.

R--OPTION - Investigative System
Solicitation Number: DJA-13-AOSI-PR-0238-1
Agency: Department of Justice
Office: Bureau of Alcohol, Tobacco and Firearms (ATF)
Location: Administrative Programs Division (APD)
available at http://tinyurl.com/cbwoq59

From Wired: "[ATF] is looking to buy a 'massive online data repository system' ... to process automated searches of individuals, and 'find connection points between two or more individuals' ... instead of requiring an analyst to manually search around for your personal information, the database should 'obtain exact matches from partial source data searches' such as social security numbers (or even just a fragment of one), vehicle serial codes, age range, 'phonetic name spelling,' or a general area where your address is located. Input that data, and out comes your identity, while the computer automatically establishes connections you have with others."

"... the ATF is widely perceived as a weak, stagnant and underfunded agency. Even if it has a database that can track you down and find out who your friends are, it won’t necessarily be able to apply that to tracing gun transactions due to Congressional restrictions. If the agency finds a gun linked to a crime, and then traces the gun to someone who bought it from someone else, all of that work figuring out the who’s-who will still likely have to be done manually."

It takes a few months for the Federal Government to get moving after something like Newtown.  They're making progress.  However, as the article notes, Federal Law bars the ATF from creating a centralized database tracing gun transactions.  It doesn't bar anyone else from doing it, just ATF.  Which is a policy with certain downsides.

... and California's Deficit Comes Right Back.

From the New York Times: "A federal judge on Friday rejected California’s motion to regain control of mental health care in its prisons, ruling that the quality of care failed to meet standards required by the Constitution."

This suggests a significant defeat is in the offing for the Brown administration, because the State budget will now likely be thrown back into a deficit position due to the $1.9 billion in costs associated with housing prisoners out-of-state; while the decision today concerned the mental health system, it is expected exactly the same rationale will apply to the overcrowding decision.

"What Crimes did Prisoners Commit?"

Criminal Justice and Judiciary FAQ

California Legislative Analyst

available at http://tinyurl.com/cedexfj

This is not the first time I've blogged about this. Prison overcrowding is the enduring wild card in the State budget on the spending side, especially now with the emergence of Obamacare.

Perhaps one of the ironies of the whole situation is that California (particularly its voters) is working rather hard to decriminalize marijuana. According to the State's Legislative Analyst's Office, approximately 31 percent of inmates in California’s prisons were incarcerated for a drug-related crime. I don't think decriminalization of possession would make the difference-- there are about 1,500 prisoners at the State level for possession -- but I suspect the real change would be caused by the legitimization of formerly criminal enterprises -- there would be less need for violent "self help."

But Federal law continues to block that legalization, while at the same time the Federal Government is criticizing the State for failing to build enough prisons to reduce the overcrowding that is at least partially created by the very policy the voters of the State have rejected.

Hmmm.

Prop. 8 and Crossing the Rubicon.

In the Prop. 8 arguments on Tuesday, Justice Kennedy focused on the fact that there are 40,000 adopted children of same sex couples in California. It was perhaps the most poignant moment in the whole oral argument (I bothered to listen):

"On the other hand, there is an immediate legal injury or legal — what could be a legal injury, and that's the voice of these children. There are some 40,000 children in California ... that live with same-sex parents, and they want their parents to have full recognition and full status. The voice of those children is important in this case, don't you think?"

I don't think that Justice Kennedy was asking a question here. Justice Scalia followed up with an oblique history reference:

"I mean, we granted cert. I mean, that's essentially asking, you know, why did we grant cert. We should let it percolate for another — you know, we — we have crossed that river, I think."

The allusion to Caesar crossing the Rubicon was appreciated by the historian in me.  The phrase originates with Julius Caesar's seizure of power in the Roman Republic in 49 BC. Roman generals were strictly forbidden to bring their troops into the home territory of the Republic in Italy. On 10 January, Caesar led his army across the Rubicon River, crossing from the province of Cisalpine Gaul into Italy. After this, if he did not triumph, he would be executed -- it was a point of no return.

I think that Justice Scalia (and probably Justice Kennedy) are aware that society has reached a point of no return when the families of 40,000 children are at issue.  The court needs to do something, one way or another. I continue to think there's going to be a decision on the merits.

The Plutonium Standard.

Free Exchange, one of the Economist's bloggers, speculates today on the value of the U.S. Government as a venture capitalist, and comes down in favor, with significant caveats.  The one that grabbed my interest was:

"... it might make sense for America's government to ... support innovation while also being a very bad idea for [nations like] Belgium or ... Mexico. Why? Well the "extraordinary privilege/burden" afforded America by its control of the world's favourite currency and safe asset means that the dollar is always going to be a bit too strong and foreigners are always going to be lending American money a bit too cheaply. That status places American exporters at a slight disadvantage (except in knowledge industries where trade costs are negligible) and means that in the absence of government borrowing cheap loans may flow to less productive investments in stuff like empty exurban homes. It makes sense, then, for America to plow a lot of money into research activities that may boost long-run growth, helping to keep it attractive as controller of the currency/safe-asset of first resort."

This is a less perceptive point than it first appears to be -- the salutary effects of national debt are many, as Alexander Hamilton argued.  Rather than liquidate the national debt, Hamilton recommended bonds be issued and repaid to promote their exchange as legal tender, equivalent in value to hard currency, which allowed the government to increase the money supply and stimulate investment, which in turn increased revenue. Alexander Hamilton didn't argue that such government borrowing can also reduce speculative or inflationary economic activity through upward pressure on interest rates, which is what this blogger's arguing for here. The unstated assumption is that the government allocation of capital might be more efficient at the margin than privately directed investment, a point one or two people might argue with.

But the columnist does finish well, at least analytically speaking:

...  the unique role of America's military as chief guarantor of the public good that is international peace also shines a (generally) more favourable light on investment in technologies ..."

This is the "plutonium standard" argument. America's near-overwhelming military power means that investors have a great deal of confidence in the U.S. Government, and that power has been built on technological innovation.  Instead of an economy based on a gold standard, it is ideas and innovation that the dollar (and ultimately, the American economy) is built upon, which inclines me to agree with the blogger, who argues it is "hard to regret big government investments in technology despite the frequent emergence of waste and failure."

Cyprus, Bank Runs, and the Metallic Flick-Click of a Switchblade.

Wolfgang Münchau, in his column in the Financial Times today, paraphrases Sir Mervyn King, the Governor of the Bank of England. Normally, not a big deal.

Today it's about Cyprus. Also not usually a big deal.

However, the paraphrase today is about bank runs, and specifically, how the European Union has now created the potential for one in Cyprus.  I've tracked down the actual quote.

"These things are very fragile. Once the run starts it was then rational for other people to join in"

Because the quote suggests that a run is rational for depositors, and because of the potential for a Cypriot run to cause the same to occur in Spain or Italy, this is the banking-finance-economics equivalent of the metallic flick-click of a switchblade in a dark alley. 

What did the EU do to cause this? The EU is bailing out the Cypriot banks via a "stability levy" of 9.9% on deposits larger than €100,000. There are strong arguments this is a good idea; deposit insurance's protection is typically not unlimited, and bank deposits over a certain sum begin to look more like investments, where socialized risk has substantial downsides -- namely moral hazard.  

The EU didn't stop there -- they also imposed a 6.75% levy on deposits smaller than €100,000. That was dumb. Banks provide payment services, and bank accounts are indispensable to businesses and individuals. By undermining the security of those smaller accounts, the EU risks destroying the Cypriot economy -- and has sent a message that other customers throughout Europe are not protected against the same.  And the thing is, for smaller banking customers, certainly in Cyprus, and maybe throughout the EU, taking their money out of their accounts is now rational. The design of deposit insurance should make that argument wrong, always.  

Since 2008, Atlantic civilization has faced the dismal truth that while standard economics has offered good answers, political leaders — and all too many economists — chose to forget or ignore what they should have known. This isn't my awesome, unique idea -- it's Paul Krugman's.  And he's right, once again.

Le Mieux est l'ennemi du Bien.

One of the hardest things in life is to know when something's done -- when it's good enough, versus when it's perfect.  Voltaire's observation that the best is the enemy of the good (the original version,
en français, is the title of this post) and Herbert Simon's principle of satisficing both come to mind. The list of interesting blog posts in my drafts folder is a testament to that fact; I'm definitely the sort that wants the post to be right, not merely good.

But having said that, sometimes I see something in my daily reading that's so obviously important that I have a sense that it's worth comment on, even if only briefly.

Civilian Employment-Population Ratio

Federal Reserve Bank of St. Louis

available at http://research.stlouisfed.org/fred2/graph/?g=glG

Today, it's the graph on the right, courtesy of Brad DeLong, a professor of Economics and chair of the Political Economy major at the University of California, Berkeley.  His post today concerns the +236,000 change in nonfarm payrolls in February 2013.  Anyone getting back into work is A Good Thing, but Brad's reality check is well warranted.  The graph on the right really tells the story.  The St. Louis Federal Reserve Bank has outstanding statistical reports on their web site (oh, if I had only been a student today with tools like this available ...), and Brad's has his eye on the Civilian Employment-Population Ratio.  It was around 63% until 2008, and then fell off a cliff that it hasn't recovered from.  To start getting this number up over 59% again generally will require more than 300,000 new jobs every month, and as this graph (painfully) demonstrates, it's just not happening.  

It seems that every spring since the start of the Lesser Depression businessmen are hopeful this will be the year things turn. Yet to paraphrase Brad, there has been no closing of the output gap and no decline in the unemployment rate from putting a greater share of the adult population to work -- all of the decline in the output gap and all of the decline in the unemployment rate since 2008 is from the collapse in labor force participation. And as Paul Krugman notes this morning, hundreds of billions of dollars are piling up in the treasuries of corporations that, facing weak consumer demand, see no reason to put those dollars to work -- and thus, sadly, I must note that this time it doesn't look like it's going to be any different.