Mitchell's Musings

  • 07 Nov 2014 2:01 PM | Daniel J.B. Mitchell (Administrator)

    Note: This musing was originally prepared as a background note for the UCLA Anderson Forecast December conference. A shorter version will appear on a blog of the UCLA Anderson School of Management. Despite its focus on California, readers in other areas may find it instructive.

    Whenever California infrastructure investment is mentioned, there is a tendency to hark back to a Golden Age after World War II. During that period, our current governor’s dad, Pat Brown, is credited with freeways, a major state water project, and the 1960 Master Plan. But there were other political figures involved and when you look more deeply, you find that these accomplishments had a longer history. Economists have a phrase, path dependency, which suggests that events of the past direct and constrain what we do in the present. And that was certainly true of the Golden Age.

    One factor that ushered in the Golden Age was World War II and subsequent Cold War, both of which boosted California’s economy and its growth rate with an influx of federal spending on what became the aerospace industry and other related military sectors. The result was notably faster economic and population growth in California relative to the rest of the U.S. and with a focus on technology and high paying jobs. Fast growth with good incomes meant that nasty trade-offs could be avoided. We could have expanding social programs and infrastructure investment without worrying that a dollar more for one meant a dollar less for the other.
    While the era of fast growth made infrastructure investment decisions easier, even in the Golden Age there was inevitable opposition. Then-Governor Earl Warren pushed through the Collyer-Burns Act of 1947 which opened the door to the modern California freeway system, using a funding model based on gasoline taxes and a trust fund for road construction. So successful was that model in California that it was imitated at the federal level and became national policy during and after the Eisenhower years for the interstate highway system.

    What we now call the three segments of higher education - the University of California, the California State University system, and the community colleges - were already expanding before the Master Plan. But turf battles between the three segments were hindering the expansion and needed to be sorted out. What the Master Plan did, therefore, was to provide a politically-acceptable division of labor for the three segments. Similarly, the idea for Pat Brown’s state water project did not suddenly spring into existence in the 1960s; there had been water planning and debate for decades before. The project was built on a foundation of prior planning and it was (narrowly) approved by voters in the face of the north-south conflict that often arises when water in California is discussed.

    Fast growth during and after World War II was a necessary, but not sufficient, condition for the Golden Age of California infrastructure investment. What was also needed for conditions to be sufficient was public confidence that promised projects would in fact be delivered as promised. Luckily, there was a pre-war history that suggested they could be confident. In the early 20th century, for example, the City of Los Angeles built its Owens Valley water project on time and within budget.

    OK; I know. You saw the movie “Chinatown” and you think the Owens Valley project was nothing but a municipal scandal built around corruption, murder and incest. Without going into more detail, let’s just say that the movie was fictional. Not long after L.A. constructed its Owens Valley project, San Francisco built its Hetch-Hetchy water project, a project which with your modern environmental sensibilities you may also disdain. But suffice it to say, that’s not how it was perceived back then.

    During the Great Depression, there were other impressive projects - some of which were motivated in part by the need for job creation and federal subsidy. With regard to water in southern California, there was the aqueduct bringing water from the Colorado River. In the Bay Area, there was the Bay Bridge and the Golden Gate Bridge. In southern California, there was the Arroyo Seco Parkway (now the Pasadena Freeway). The upshot was that in post-World War II California, voters had reason to believe that if they supported projects, those projects would be delivered. Thus, Governor Earl Warren could mobilize public pressure on the legislature to enact Collyer-Burns for freeways in the face of gridlock engendered by oil companies that disliked gasoline taxes. And Governor Pat Brown, as noted, beat back regional opposition to his water project sufficiently to obtain voter approval.

    Each quarter for many years, the UCLA Anderson Forecast has updated a chart that illustrates the consequences for the state when the Cold War came to an end around 1990. You can see the chart below.

    Click HERE for PDF with graph.

    The old Cold War trend line of employment on the chart begins to separate in 1990 from actual employment and it continues to do so even in the face of the dot-com boom of the late 1990s and the housing/mortgage boom of the mid-2000s. Since 1990, California has entered a period in which its growth rate is more or less average compared with the rest of the U.S. If we had stayed on the old trend, we would have something like 6 million more jobs than we actually do. Nowadays, unlike the era of above-average growth during the Cold War’s Golden Era, there are those nasty trade-offs. More money for social programs means fewer dollars for infrastructure. Alternatively, if you want to have both, someone will have to pay more in taxes. The temptation, given that unpleasant trade-off, is to charge the costs to the future via bond finance. Let somebody in the future pay for what we want.

    Absent some new external accident of history, Cold War-style above-average growth rates are not going to return to California. Despite the temptation to do so, in a period of mere average growth, infrastructure – whether water projects or college campuses – should not simply be charged off to the future via bond sales, the pattern that has developed in recent years and that was, for example, reflected in the water bond on the November 2014 ballot. Absent rapid growth, we can’t count on the future economy to be so much larger than it is today so that paying off past debt when the future arrives will be painless. If nothing else, there are intergenerational inequities in relying too heavily on bond finance.

    At the same time, the state’s record in recent infrastructure investment is blemished. The new replacement segment of the Bay Bridge, a state project, has been marked by improper state inspections, faulty components, and costs beyond budget. Closer to UCLA, the large expenditures on widening the I-405 freeway in the Sepulveda Pass - and years of inconvenience during construction - seem to have produced no marked traffic improvement. Sidewalks in the City of Los Angeles are notoriously cracked, uneven, and misaligned due to tree root damage. Public support in the future for infrastructure repairs and expansion, the funding for which should increasingly depend on user fees and less on bonds, will be limited unless there is a better record of success in past projects. Badly done projects today mean public skepticism tomorrow.

    So what is to be done? Key elected officials are going to have to explain to the public what the end of the Cold War has meant for California fiscal affairs and for its infrastructure finance. It may seem odd a quarter of a century later that our politics are stuck at 1990, but that is the reality. User fees and user taxes for water, roads, and other public projects need to become a larger part of the funding mix; it can’t be all bonds. And the credibility of public authorities when it comes to infrastructure implementation needs to be restored.

    The old Master Plan approach, used for higher education in 1960, may be useful model today, not only for higher ed, but for transportation and water, too. We need to set up mechanisms outside the legislature for developing overall plans. Once plans are developed, key politicians need to sell the plans, first to the public and then to the legislature. Folks, the Cold War is over.

  • 31 Oct 2014 7:58 AM | Daniel J.B. Mitchell (Administrator)

    It may be old hat to analysts of labor, management, and human resources generally, but a good rule when there is perverse behavior is to look at the incentives. However, what seems to be an obvious point seems to have escaped public policy discussions regarding Ebola. Ebola in the past was a relatively obscure disease that would occasionally break out in Africa, but generally ran its course and disappeared. In the last few months, however, it has become an epidemic in several African countries. When Ebola leaked into the U.S. via travelers from affected areas, there was an instant controversy over the appropriate policy response.

    For a PDF of this article, click HERE.

    Some of the controversy involved guidelines for U.S. hospital workers and other health workers concerning how to handle Ebola patients, and – more specifically – whether the appropriate procedures were used at a Dallas hospital in which two nurses contracted Ebola from a patient. Another controversy arose over whether the guidelines in use themselves were appropriate from a technical standpoint.
    However, the most visible controversy has developed over the treatment of travelers from afflicted countries, including returning American health workers who were assisting in efforts to try and contain the epidemic within Africa. Because Ebola is often fatal, various politicians proposed bans on travelers from afflicted countries or proposed quarantines of such travelers for an extended period while it was determined whether they in fact had the disease. The quarantine approach is complicated by the fact that the incubation period for Ebola can be as long as 21 days (reportedly).

    The most recent controversy involved a health worker who was quarantined by the State of New Jersey on orders of Governor Chris Christie. Since Governor Christie is a likely presidential candidate in 2016 and a Republican, you might view his action as both “political” and “conservative.” But my home state California, which has a Democratic Governor sure to be re-elected to a fourth term and one who is not at all likely to be a presidential candidate is also imposing quarantine procedures.1 That fact suggests that there is an incentive for states to move in the same direction, regardless of politics.

    The official response from Washington – including from President Obama – has been a combination of pointing to irrational fears about Ebola and noting that unless the epidemic is quelled in Africa, there will inevitably be some leakage to the U.S. The argument goes on to point out that quarantines might discourage health workers from going to Africa.2 In effect, discouraging health workers from going to Africa is ultimately bad for the U.S. because of the leakage problem. So far, at least, that argument has not stopped states from moving on their own. The health worker who was held in New Jersey went to Maine after being released and that state tried to impose new quarantine restrictions on her there.

    Let’s note that we don’t actually know the degree to which state quarantine restrictions might discourage health workers from going to Africa. And let’s concede that vastly more Americans will die of – you name it – traffic accidents, flu, etc., than will die of Ebola under any scenario, i.e., that people are not very good at weighing probabilities related to relative risks. Putting all those considerations aside, let’s look at incentives for individual state action and the classic free rider problem.

    Consider the California case. California has a little less than one eighth of the U.S. population. It may well have more than one eighth of relevant health workers so let’s go with the assumption of a fourth of relevant health workers are in the state rather than an eighth. If California has one fourth of relevant health workers and imposes quarantine restrictions, presumably its action has no disincentive effect for the other three fourths who might go to Africa. And even the one fourth in California could escape the California quarantine by returning to another state. Or they might go to Africa despite the restriction.

    Therefore, by imposing a quarantine, California – the largest state in the U.S. – has perhaps a one fourth impact on the number of U.S. health workers going to Africa. It has a relatively small effect on the health benefits to Africans (who – let us crassly note – are not residents of, or voters in, California). Some of the discouraged California health workers may be replaced by those in other states or nations. California thus has little effect on any leakage back to the U.S. of African Ebola. And if there is leakage, the leaks have something like a three fourths chance of ending up in another state.

    In effect, California is a free rider or close to it. It can get whatever benefits a quarantine might have on the state (even if those benefits are non-medical reassurances felt by the local population). The costs it imposes on other states – a somewhat elevated probability of a leak from Africa – are very small and maybe almost nil. So the incentives line up in California for imposing a quarantine. And, indeed, each individual state when considering its Ebola impact, can make the same calculation. The smaller the state, the less its policy matters.

    The remedy is obvious, though probably difficult to implement in practice. If each state acts alone and follows the same incentives, there will be quarantines everywhere. The impact on health worker willingness to go to Africa could be substantial as more states adopt restrictive measures. And the result could be an elevated risk of leaks of Ebola back into the U.S.

    In short, there is a collective interest, according to the argument made by federal authorities, in not imposing arbitrary state quarantines or similar measures. But there isn’t an individual state interest. Ergo, the federal government needs to have pre-emptive authority to act in the collective, national interest. That would be the optimum policy solution. It applies whenever collective action is needed in the collective interest but individual incentives do not align with those of the collectivity. Ebola is a textbook example.

    Of course, there are cases in which free rider problems are resolved by pure exhortation to do good for the collectivity, such as federal authorities are currently trying with their plea to the states. Public radio, for example, has the free rider problem; you can receive the broadcast signal whether you support the station financially or not. Through pledge drives and other enticements, however, some listeners are induced to pay for the station even though the rational economic choice for the individual is to free ride, i.e., not to pay. It’s hard to get numbers of the proportion of listeners who are induced to pay. I found one article which said one-in-ten listeners respond to appeals to pay.3

    That proportion is apparently sufficient for supporting public radio. So possibly some state governors will pay attention to the feds and refrain from automatic quarantines. Perhaps the public will be calmed enough by presidential assurances that governors won’t feel pressure to act.4 Maybe, after Election Day, the federal exhortation approach will thus prove to be sufficient. If it isn’t enough, the feds will at least have to try to produce a policy that provides more central authority than now prevails.


  • 27 Oct 2014 9:17 AM | Daniel J.B. Mitchell (Administrator)

    In our previous musing, we looked at various measures of the labor market. Among them was the civilian participation rate, shown on the chart below. As can be seen, participation rose for decades until around 2000. Thereafter, it dropped, particularly in the wake of the Great Recession.


    Graph: Civilian Participation Rate: All 16+

    For the entire post, including graphs, click HERE.

    Nowadays, there is beginning to be discussion of labor shortages. The construction industry has been particularly vocal, although when measured by the job openings (vacancy) rate, construction does not especially stand out.1 (The August 2014 private sector job openings rate was 3.6%; construction reported 2.9%.) Nonetheless, there could be spot shortages in construction not reflected in national average data. A Proquest search for “labor shortage” in the U.S. produced references to shortages of pilots, truckers, construction workers, teachers, health care professionals, and longshore workers.

    Let’s assume labor shortages are now occurring or will occur soon. The drop in labor force participation seems to reflect a contradiction. If employers can’t find workers, and if – as the interpretation often is – the drop in participation reflects a kind of discouragement on the part of potential workers, there is a problem. Possibly, the paradox reflects some sort of structural mismatch; potentially available workers don’t have the right skills. However, I suggested last week that employers may simply be slow to react to the change in circumstances – perhaps as a result of all the “new normal” talk of recent years which suggested that they could expect a line of applicants at their hiring doors indefinitely.

    Either way, if you as an employer want workers but can’t find them, you’ll ultimately have to work at the problem rather than bellyache about it. That means some combination of relaxing hiring standards, training applicants if they don’t have all the required skills, and – yes – raising pay and benefits to make your workplace more attractive. In effect you have to forget about the supposed new normal and get
    out there and recruit. Employer behavior appropriate to a soft labor market is not appropriate to a tight one.

    So – if the drop in participation represents a potential pool of workers who aren’t knocking on your door but could be enticed – who exactly is not participating? Let’s look at the issue by age group.

    What about older workers? The chart below (for those aged 55 and above) suggests members of the older group haven’t been discouraged. Older workers exhibit labor market behavior that somewhat of a mirror image of other workers. Their participation rate dropped in the post-World War II era until the 1990s. Presumably, that period of drop reflected growing availability of Social Security, pensions, and other sources of support that reversed the practice of work-until-you-drop. The reversal in the 1990s
    and beyond may well be the discovery that those income supports, absent adequate private saving would not support an expected lifestyle. Whatever the reason, despite all the talk about folks living longer and so desiring to work longer, there seem to be limits to how far that motivation can go. If nothing else, health issues limit this source of incremental labor supply.

    Graph: Civilian Participation Rate: All 55+

    If the aging baby boomers aren’t going to fill the gap – or at least not much more so than they already do – what about the other end of the age spectrum? The data suggest in fact that a good place to look for workers is in the youth range of the market. You can grumble about problems in K-12 education, poor writing ability, too much social media, etc., for young people. But – again – if there is a labor shortage and folks are not lining up at your hiring door, you have to adapt to the available labor supply. Grumbling is for the now-old new normal. But if the new normal is now disappearing, grumbling time is over.

    On the next page, the chart shows the participation rate for those 16-24 years old. And what you see there is a dramatic drop in participation that started in the 1990s, fell further in the 2000s, and especially declined in the post-Great Recession period. So the youth end of the labor market seems like a good place to be looking for, and recruiting, needed workers. At least for raw labor supply, that’s where there is notable potential. If the supply is not exactly what you want, just reverse the old saying and instead note that you can teach a young horse new tricks.

    Graph: Civilian Participation Rate: All 16-24

    And what above the folks in the middle of the age spectrum. There are lots of them, of course. But as the chart below indicates, their participation drop is not as dramatic as that of the youth segment. And, as we have already noted, the older end of the market seems likely to be at capacity.

    Graph: Civilian Participation Rate: All 25-54

    The U.S. Bureau of Labor Statistics (BLS) defines a subset of those individuals not in the labor market (not participating) as “marginally attached.” The official definition is that persons who are "marginally attached to the labor force" are those who want a job, have searched for work during the prior 12 months, and were available to take a job during the reference week, but had not looked for work in the past 4 weeks.2 Not looking in the last four weeks cuts them out of the official definition of being unemployed. Note that the precise count will be sensitive to the definitions used for marginally attached. But there were about 2.4 million such marginally attached individuals in 2013.

    When broken down by age, about 31% of them were in the 16-24 year old age bracket. Yet only 16% of the civilian population 16+ was in the same age group. Those in the midyears, 25-54, constituted about half of the population and about half of the marginally attached individuals. In the 55+ group, however, despite accounting for about a third of the population, individuals in this group were only about 21% of the marginally attached.

    Suppose instead of taking the BLS definition, we eyeball the charts shown earlier and note the following. Since 2008 (the Great Recession), participation of the youth group (16-24) has dropped by about 5 percentage points. Participation in the middle range (25-54) seems to have dropped by about 2 percentage points. And participation of those in the older group (55+) seems not to have dropped at all. Putting these numbers together suggests that about 44% of the Great Recession’s impact in marginalizing potential workers (pushing them out of the labor force) fell on the youth group (16-24), even though that group is only 16% of the civilian population. Fifty-six percent of the impact was on the middle age range (25-54 and there was zero impact on the older group. In short, poking around the youth group for potential workers will produce a disproportionate “yield” for employers. Poking around aging baby boomers will not; quite the opposite.3

    Back in the early 1970s, the late Brookings Institution economist Arthur Okun described the impact of a “high pressure” labor market such as existed in the late 1960s. Employers back then looked in unconventional places and aggressively recruited to cope with labor shortages.4 Widespread concerns about labor shortages arose again in the late 1980s.5 Labor shortages also cropped up during the dot-com boom of the late 1990s.

    We’re not yet in the high pressure labor market that occurred in these earlier episodes. And one can easily imagine external or internal events that could impede or reverse the ongoing economic recovery. However, at least for now, new normal expectations of employers that workers should be presenting themselves at the hiring gate and have an ideal set of skills are becoming obsolete.

    3 and

  • 21 Oct 2014 1:28 PM | Daniel J.B. Mitchell (Administrator)

    Is the labor market finally recovering? It depends on what measure you use. The most widely used index of the temperature of the labor market is the unemployment rate. By that measure, we are not back to the level achieved just before the Great Recession. But we are headed in that direction, as the chart below shows:

    Graph: Unemployment Rate, seasonally adjusted (percent)

    For the entire post, including graphs, click HERE.

    On the other hand, the civilian participation rate has been falling in what seems to be partly a secular trend but one which the Great Recession accelerated and which shows no sign of reversing.

    Graph: Civilian Participation Rate, seasonally adjusted (percent)

    The falling participation rate – and certainly the drop triggered by the Great Recession – suggests that there is a significant amount of discouraged unemployment based on a sense that jobs are hard to obtain. So the question is whether there is anything on the horizon that would suggest change is coming, even if not yet seen. The U.S. Bureau of Labor Statistics (BLS), the source of the two charts on the previous page produces a job vacancy rate (termed the “job openings rate”), a kind of analog on the
    other side of the labor market to the unemployment rate.

    Graph: Job Openings Rate, nonfarm sector, seasonally adjusted (percent)

    As can be seen on the chart above, employers are at least claiming they have vacant jobs at a rate comparable to the peak seen before the Great Recession. Are these just claims or are employers back to hiring as they did before the Great Recession? The answer, as shown below, seems to be “not quite.” 

    Graph: Hires Rate, nonfarm sector, seasonally adjusted (percent)

    There could be a “structural” story here with employers unable to find workers with the right qualifications. In this story, vacancies are available, but somehow unfillable by the current labor supply. Potential workers, realizing they don’t have the right skills, are discouraged and not participating. But there is a problem with that interpretation.
    If there is truly a lack of qualified workers but plenty of jobs if only more qualified workers were available, we should see wages being bid up as employers compete for the scarce labor.

    Graph: 12-Month Percent Change, Employment Cost Index for Wages and Benefits, Civilian Workers

    Graph: 12-Month Percent Change, Employment Cost Index for Wages, Civilian Workers

    It’s hard to see any bidding up of pay from the two charts on the prior page. Thus, unless you believe that employers will just sit with vacancies unfilled and not take steps to try to hire the limited supply of qualified workers, the structural story has problems. What other hypothesis might square with the available data?

    The labor market and its participants are not like the instantly-responding stock market. Employers tend to follow the leader – often termed “benchmarking” – when it comes to pay or other workplace practices. It is certainly the case that the recovery since the Great Recession has been slow – arguably slower than it had to be. But it is a relatively steady recovery. Unless there is an economic reversal – not impossible when one looks at trouble spots such as the Middle East – the pressure to fill unfilled vacancies will grow.

    At some point, employers will be faced with two options. You can raise pay and bid for those workers you think are qualified. Or you can lower your qualification standards and – perhaps with some added training – bring in some workers who might not have been your first choice. Perhaps you might do a combination of the two. Anecdotal reports suggest that employers are beginning to move.1 So when we say “at some point,” and when we look at the charts in this Musing, we are talking about something coming relatively soon.
    1 See, for example,

  • 10 Oct 2014 12:31 PM | Daniel J.B. Mitchell (Administrator)

    Getting a college educations is expensive. No startling news there. However, public universities – which rely on state subsidies for a significant portion of their “core” educational expenses – were subject to substantial budget cuts during the Great Recession. Even in the recovery, they find themselves behind in the amount of public subsidy received and so seek alternative revenue sources. One obvious source – in fact, THE obvious source - is tuition.

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    In my own University of California system, roughly one out of ten dollars in the UC budget now comes from the state. That state dollar is more or less matched by tuition funding from students. The other eight dollars result from research grants, patient revenues on campuses with hospitals, and other miscellaneous sources such as administering what used to be called the nuclear labs – a leftover from the World War II Manhattan Project.

    Now there is room for argument about what exactly “core” educational expenses are. There is much overhead involved in running a university for such things as utility service, policing, libraries, computer services, etc. So it isn’t precisely true that there is no fungibility between, say, grants for specific research projects and core expenses (e.g., running the English department). But it true enough so that universities cannot solve their problems of educational funding by getting more grants or performing more surgeries. One can argue about what is the true marginal cost of admitting an extra student. (Presumably, it varies depending on what major the student takes, among other factors.) But there is some added cost to increasing enrollment.

    While it’s fun to argue about such accounting matters, at the end of the day there are only so many dollars entering the system and if some are cut off, either some activity is going to be reduced or alternative funding has to be raised. It’s nice to talk about eliminating waste and thus obtaining free money, but in the end, the story is not going to be about painless cutbacks. Yes, work on efficiency, but know that it isn’t going to solve the problem.

    Tuition is actually a complex story that goes beyond the sticker price. Different students pay different amounts depending on “need” as measured by factors such as family income. So dollars are recycled among students through a redistribution mechanism. In addition, some dollars come from outside the system such as from federal aid to students. Typically, state university systems offer lower tuition to in-state residents than to out-of-staters. Thus, when dollars are scarce, the temptation is to admit more out-of-state (and foreign) students who generally pay the non-state sticker price and receive no subsidy. (The story becomes still more complicated at the graduate student level where there may be subsidies for out-of-staters, particularly at the doctoral level).

    The issue is in good measure a political one for public universities. In California, the legislature and governor ultimately determine how much subsidy the three university systems (University of California, California State University, community colleges) will receive. For UC and CSU, especially, the legislature knows that cutbacks in state funding will likely lead to tuition increases. But unlike tax increases, the legislature doesn’t have to do the dirty work of raising tuition. Indeed, it can point with horror to what the universities are doing when tuition rises. It can also complain when universities raise the proportion of out-of-state students for the added sticker price revenue.

    Just as with defining core educational expenses or the marginal cost of adding a student, it is possible to debate whether admitting an out-of-state student displaces some local resident. It all comes down to an argument about how many locals the university would otherwise have been admitted. Since what would have happened otherwise cannot be observed, the displacement issue remains fuzzy. Nonetheless, even if a university claims that it admitted the same number of in-state residents as before, but also increased out-of-staters, if the proportion of the latter grows, it is likely that some displacement has occurred. It may not be one-for-one, but some displacement undoubtedly happens.

    Standard practice – at least for the University of California – is for the Board of Regents to propose a budget for the money it seeks from the state, typically one linked to enrollment. But the go

    vernor and the legislature may not go along. In fact, in the current era, they seldom do. However, other than vague warnings that tuition might have to be raised if the budget request isn’t met, the university doesn’t do much.
    That approach is a mistake. What should be provided is a specific and contingent budget menu. If the budget is X, we will take Y in-state students and not raise tuition. If the budget is X-A, we will take Y-B students, and raise tuition by C. If the budget is X-D, we will take Y-E students, and raise tuition by F. Choose from the menu. Whether this menu is made public initially or delivered privately is a tactical decision. There is something to be said for a private start, simply because a change in tactics breaks a tradition and could provoke hostility.

    Of course, regardless of whether the menu is private or public, there would likely be pushback from the legislature and governor. And they could retaliate in various ways. But the menu approach makes clear what the retaliation would entail. Fewer dollars, for example, would mean more out-of-staters and higher tuition. Basically, there are two variables in play here, tuition and in-state enrollment. One or both are the adjustment factors. There is no getting around that fact, so it might as well be made explicit in budget proposals.

    You have to select from what is there on the menu.

  • 05 Oct 2014 10:15 AM | Daniel J.B. Mitchell (Administrator)

    Academia is often described pejoratively as an Ivory Tower. I say “pejoratively” because the image of the Tower is one of a world somehow isolated from external reality. There is some truth to the image, but not entirely. The real world in fact constantly intrudes into academia. There are always the usual constraints of budgets, resources, and the pressures of competition with other institutions. Sometimes conflicts from outside the Tower make their way in.

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    One special value that runs through academia, however, is academic freedom, particularly for tenure-track and tenured faculty. But when academic freedom is considered, the discussion is often inconsistent. Let’s take “civility” for example. Recently, the chancellor at the University of California (UC)-Berkeley was criticized for suggesting that differences of opinion are best discussed with civility. Outside the Tower, such an assertion might be greeted with a yawn. It’s motherhood and apple pie stuff! But within certain circles of academia, alarm bells went off. You see, in those circles the chancellor was arguably talking in code about something else. Spoiler alert: It was the Middle East and Israel-Palestine to be more exact.

    Before we get to the details of the “something else,” let’s note that the dispute over civility at Berkeley spilled over to my own campus at UCLA where the student newspaper wrote an editorial saying that the Berkeley chancellor just shouldn’t be talking about civility.1 That is, in defense of academic freedom and free speech, the editorial prescribed what the Berkeley chancellor should and shouldn’t say! Did anyone notice the paradox? If anyone did, I didn’t notice.

    On another campus – this time at UC-Santa Barbara – we had an incident in which a professor got into a physical altercation with an anti-abortion high school student/demonstrator. The professor argued in her defense that her reaction was the result of “triggering” by a placard carried by the demonstrator.2 It was OK to be uncivil because, well, she felt like it. (That sort of defense, unfortunately, is taken more seriously in academic circles than in the court system where she was sentenced to three years of probation plus some community service and anger management classes.) The Santa Barbara incident took place among a more general discussion of whether university syllabi should have “trigger” warnings about topics that might upset a student. That is, students should be warned about possible ideas in courses that might upset them. (Fortunately, the trigger wave seems to have passed after a good deal of ridicule from outside the Tower.)

    In short, there seems to be a desire among some folks in academia not to be confronted with opinions with which they disagree and, if they can’t avoid such ideas or control them, to be free to be as uncivil about it as they like.3

    So let’s get back to the “something else” behind the civility issue at Berkeley. What was actually being discussed by the Berkeley chancellor, in the view of his anti-civility critics, was the Israeli-Palestinian conflict in the Middle East. Now the Middle East is a complex place with many, many conflicts and lots of forces intent on fanning those conflicts. There are some students and faculty, however, focused only on Israel-Palestine and who are pushing for university divestment of, and academic boycotts of, Israel. Rhetoric around the issue sometimes gets out of hand and there are then learned debates about whether particular anti-Israel statements are actually anti-Semitic or just critiques of a policy.

    Calls for “civility” are thus generally seen more aimed at the anti-Israel group than the pro-Israel group. This interpretation was particularly likely to be drawn after the arrest and conviction in 2011 of some Moslem students who attempted to interrupt a speech by the Israeli ambassador at still another UC campus.4

    I don’t know if the local anti-civility agitation has prevented the UCLA chancellor from making a public call for civility comparable to the one at Berkeley. Maybe it has; maybe not. If you read further, you will find an official UCLA reference to “civil dialogue” as a Good Thing. There is at UCLA, however, an alternative strategy to deal with the Israel-Palestine problem by demonstrating that there is “balance.”
    The balancing act idea may actually have started with the UC Regents. The Regents annually select a student regent-elect who serves one year and then becomes a student-regent for the second year. There is some process – I have no idea what it is – that presents the Regents with a student candidate that they end up choosing, usually without much debate or fanfare. But two years ago, the process produced an anti-Israel Muslim woman student who supports divesting and boycotting.5 The Regents spent time on the issue – more time than usual – before selecting her. Somehow, the next year the very same process produced a pro-Israel Jewish male student – “balance” don’t you see?6

    There is something of interest not necessarily foreseen by the Regents that came out of the dual and “balanced” choice. The terms of the student regent-elect and the student regent overlap for one year. Somehow, the two of them decided they could work together on matters of concern to students. As far as I know, the Middle East simply hasn’t come up as one of those issues. The lesson seems to be that if you push people together with very different world views, at least sometimes they can cooperate. Balancing is not the key; fair-minded, civil dialogue is.

    I recently attended a presentation by a fellow named Ali Abu Awwad, a Palestinian who lives on the West Bank. He was imprisoned on two occasions by the Israelis during demonstrations and his brother was killed in a confrontation at a checkpoint. At some point, however, he decided that dialogue was a better approach than violence and confrontation. He is currently touring the U.S. with an Orthodox Jewish Rabbi from a West Bank settlement with whom he made contact under sponsorship of a Christian organization. You can find out more at

    At UCLA, when there are complaints about anti-Israel faculty and events – one research Center (the Center for Near Eastern Studies) seems to be the focus of those people and events – the official response is that UCLA has another Center which is pro-Israel. Events and programs can be trotted out to demonstrate “balance,” i.e., some are pro and some are con. Consider a recent official UCLA response to the issue:

    “Academic units all across our campus are constantly working to provide programming that exposes our students and the public to a vast range of perspectives and topics. In fact, three centers at UCLA focus on Middle Eastern Affairs and regularly provide programming on Israel, among other topics: the Center for Near Eastern Studies, the Younes and Soraya Nazarian Center for Israel Studies and the Center for Middle East Development. Israeli academics, students, speakers and artists are regularly part of programming at UCLA. We recognize many subjects may engender passionate debate and difficult conversations and we encourage civil dialogue that appreciates the paramount importance of free expression, academic freedom and a respectful exchange of ideas."7 [Bold face added.]

    Any student of labor relations (my own interest) or any other form of conflict resolution can see the problem with this official response. There is no dialogue inherent in balancing, civil or uncivil. Balance is marginally better than imbalance, I suppose. But unlike the student-regent and the student-regent-elect, who were forced by their positions to engage each other, and unlike Ali Abu Awwad and his rabbinical associate who voluntarily chose to engage each other with civility, there is nothing in the balancing approach that brings about any engagement.
    Yes, with balance, you could wander from program to program at UCLA and hear different views on the Israeli-Palestinian conflict. But the holders of those views remain separate and in isolation. Separate but equal and lack of dialogue is itself a problem – not an answer - and the larger problem isn’t solved by demonstrating balance. Every program doesn’t have to be precisely balanced and there certainly shouldn’t have to be “trigger” warnings to protect anyone from hearing something he/she doesn’t like. But just having different messages and opinions in totally separate presentations and classes (hopefully, at least, expressed in civil terms) – while better than no balance at all – can’t be the complete solution. Civil dialogue is needed, perhaps with encouragement from the powers-that-be if faculty cannot do it themselves.

    Maybe on some future trip to the U.S., Mr. Awwad might drop by the UCLA campus. Maybe someone in authority might want to invite him. His phone number can be found below. (469) 516-4543.

    And if there are other universities with the same campus problems, the same advice applies


    2 and

    3 Full disclosure: I am on the executive board of the UCLA Faculty Association which voted to take a stance against what the Berkeley chancellor said. I voted AGAINST the resolution (I was the only negative vote) because a) I agree with what the chancellor said and b) there are too many other pressing issues facing faculty – tangible economic concerns – to engage in obscure side issues.


  • 29 Sep 2014 9:45 AM | Daniel J.B. Mitchell (Administrator)
    In recent years, there has been much discussion of unfunded liability. Usually, the targets of this concern are pension and social insurance programs such as Social Security, Medicare, and various state and local public pension plans. The concern is that even if these plans have assets in them at the moment, the projections are that the eventual liabilities exceed those assets and coming generations, therefore, will have to come up with the money to cover obligations that represent labor services in the past.

    Full article: Mitchell Musings 9-29-14.pdf

    From time to time, I have had fun calculating the unfunded liabilities of the Pentagon (we are committed to national defense “forever” but we don’t have assets on hand today to pay for that future commitment). I have even calculated the similar unfunded liability of my hometown Santa Monica’s police department. (As in the Pentagon case, the city is committed to provide police protection to all inhabitants “forever” but there are no assets set aside today to pay for that commitment.) Suffice it to say, you get very big numbers, numbers sufficient to scare your average congressional representative or Santa Monica city council member.

    There is a difference, however, between pension unfunded liabilities and future service liabilities. In the former case, we seek to have assets accumulated in the past that pay for past service, even though the actual payments are received by employees at some point in the future. In the case of promised future services (Pentagon, Santa Monica police), future taxpayers will have to pay only for services which they will benefit from in the future. In the underfunded pension case, future taxpayers are paying for the services provided for, but not paid for, by past taxpayers.

    In short, according to the idea of matching services and paying for services over time, it is a Bad Thing to have people in the future pay for the consumption of folks in the past. So let’s see if there is anywhere to be found an unfunded liability in which folks in the future must somehow pay for things in the past, apart from Social Security, Medicare, and public pensions.

    As can be seen on the chart on the previous page, when you consider the US as a whole, you find that since 1980, we have tended to accumulate international assets (claims on the world) more slowly than we have accumulated liabilities. Whereas before the 1980s, our international liabilities generally grew more slowly than our international assets, afterwards, the reverse trend developed. Of course, there were periods of fluctuation in which the trend generalization did not hold, thanks to such things as
    movements in exchange rates. But the underlying trend is evident from the chart. In 1980, we had assets > liabilities of roughly 10% of GDP, we now have assets < liabilities of about one third of GDP. In the former period, we could in theory have “paid off” our gross international debt by selling assets and still had 10% of GDP in assets left over. Now, if we tried to “pay off” our gross liabilities, we would come up short after asset sales by about a third of GDP. That’s a lot.

    Unless you think that we can go on increasing our net debt to the world forever (so there never will be a point where future folks will be paying for past consumption, you might be concerned by this forgotten unfunded liability now that you know. Of course, there is a comeback. Maybe our net borrowing has been directed toward accumulating capital assets which someday, somehow will produce the needed pay back. A visit to your local retail electronics store should disabuse you of the notion that the increase
    in debt is all going into capital goods. Flat screen TVs, iPhones, sure seem like consumption goods. Go to your local toy store and look at the country of origin of the products you find there. Sure seems like consumption goods there, too.

    For that matter, go to your local Toyota, Kia, Volkswagen, Mercedes, or BMW dealer. We can argue over what exactly is a capital good. But your car, in the end, is more consumption than investment in the sense that it is unlikely to generate resources for the US to repay our net foreign debt.1

    When pensions are underfunded, their trustees often create a plan to achieve full funding over a period of time. Essentially, what is involved is first paying into the fund the “normal” cost of the plan (the amount that covers the incremental liability generated each year) and then setting up a schedule to amortize (pay off over time) the accumulated past unfunded liability. The analog to the normal cost in the case of net foreign debt is (roughly) the net export balance. If the US from now on kept its net
    export balance to zero, the unfunded liability would cease to increase since we would be paying for current consumption from the world (imports) with sales to the world (exports). But moving to a zero balance of net exports would not pay off the accumulated past debt. To do that, we would need to run a net export surplus. The bigger the surplus, the faster we would retire net debt.

    Our net export balance seems to be around -$500 billion per annum. Our net debt is roughly 10 times that amount. (The figures vary from year to year.) So to pay off the net debt in ten years, we would have to run a net export surplus of around +$500 billion per annum. So the total “swing” from the current deficit situation to the 10-year payoff plan would be about a trillion dollars. In effect, the swing would be a stimulus of about 5-6% of GDP, with a fair amount coming from added manufacturing

    There are ways to make it happen. All that is needed is for the folks who are so upset about the unfunded liability of programs such as Social Security to become equally concerned about the hidden unfunded liability embedded in international commerce.

    1 Yes, I know; in principle if I buy a Toyota instead of a Ford, you could say that I freed up US capacity to turn out that hypothetical capital good which will someday pay off that debt. There are a lot of formerly employed auto workers who might not have experienced it quite that way.

  • 20 Sep 2014 8:38 AM | Daniel J.B. Mitchell (Administrator)

    Let’s suppose that I am a journalist. I read somewhere that real wages have been stagnant and I want to illustrate this point in an article I am writing. I discover that the U.S. Bureau of Labor Statistics (BLS) on a monthly basis produces a series called "real average hourly earnings." So I go to the BLS website to get some historical data on that series for my article. When I get there, I find: (Image 1)


    Click HERE for pdf of article with screen shots.


    I don’t immediately see a link for real average hourly earnings, but I do see a search option up in the right-hand corner. So I type in "real average hourly earnings" there and get:  (Image 2)


    Click HERE for pdf of article with screen shots. 

    As you can see on the screen shot on the previous page, a bunch of references pop up, mainly to BLS media releases that have only very limited recent data. I am looking for a longer time series, not just a few recent data points, for my article. So I go back to the starting page and click on "home." (Image 3)


    Click HERE for pdf of article with screen shots. 

    One of the options I then see there in a drop-down menu is called "pay and benefits." That sounds right. Earnings are "pay," after all. So I click there and get: (Image 4)


    Click HERE for pdf of article with screen shots.

    The result is a whole list of options as the screenshot on the prior page shows, but "real average hourly earnings" is not one of them. So I go back to the home page and try "data tools" since I am looking for a data series. Another drop-down menu appears: (Image 5)


    Click HERE for pdf of article with screen shots.


    One of the options there is "series report," so I click on that one hoping that real average hourly earnings might be one of the series reported. The result is shown below: (Image 6)


    Click HERE for pdf of article with screen shots.


    Sadly, what I find is that if you want a particular data series such as the one I am searching, you have to know its ID number. But wait! There is another option to click on "series ID formats." Maybe I will find a listing of the ID number for "real average hourly earnings" there. Another disappointment results. But I do find an option called "national employment, hours, and earnings." That option at least has the words "hours" (which is close to "hourly") and "earnings." So I click there and get: (Image 7)


    Click HERE for pdf of article with screen shots.

    This time I get a lot of strange information about things like where a seasonal adjustment would be indicated in the ID number, if only I had the ID.

    We could go on with this fruitless search but you surely get the point. The key issue here is that what should be a user-friendly public website just plain isn’t. Why - when I search for "real average hourly earnings" - don’t I immediately land on a webpage which gives the historical data for that series. Note that "real average hourly earnings" is not one of the more obscure data series produced by BLS. BLS in fact puts out a monthly release just for that series.

    BLS has been in the data business for a long time. The agency’s history actually predates the creation of its parent, the U.S. Department of Labor, early in the 20th century. BLS got on the web when the web got going and there has been plenty of time since then to produce a website that simply lists every series and doesn’t require some arcane ID number. The website should be accessible to folks such as my hypothetical journalist, and not just to professional users of labor market data who have figured out the vagaries of the website. There are commercial data providers who make BLS data and data from other official government agencies available – generally for a cost - in just the simple way I have suggested. Other government websites are more user-friendly than BLS offers. Check out, for example, the website of the U.S. Bureau of Economic Affairs, the agency that puts out the national income accounts.


    Note that this musing is not dealing with the methodology behind particular data series. Maybe "real average hourly earnings" has drawbacks as a measurement. Maybe our hypothetical journalist would do better to use some other series. Those considerations are separate issues. The only point being made here is that if a data series is being made public, the figures should be easy to access.

    It can be done.


  • 13 Sep 2014 11:28 AM | Daniel J.B. Mitchell (Administrator)

    In past musings, we have commented on the uncertainty raised by opinion polls on important public issues. Complex issues that many people have never heard of or considered are presented by pollsters to respondents who provide “answers” that are highly dependent on the framing of the questions. Recent polls regarding two initiatives that are on the November 2014 California ballot illustrate this issue. If you doubted my point before, read on!

    Proposition 45 would provide for rate regulation of health insurance by the state’s elected insurance commissioner, who currently can opine on such rates, but cannot cap them. Not surprisingly, the insurance commissioner supports Prop 45 since it expands his authority. The opposition comes from two sources. Again, not surprisingly, the insurance carriers in the state oppose the proposition. But also opposed are the operators of the state’s “Obamacare” health exchange. There seems to be a turf war going on between the health exchange administrators and the insurance commissioner that is behind the controversy.

    MitchellMusings 9-15-14.pdf

    Proposition 46 ostensibly is about drug testing of doctors (who wants a drugged out doctor?), but is actually an effort by trial lawyers to raise the state’s cap on malpractice awards.1 So, not surprisingly, doctors are opposed and lawyers are in favor. In both the cases of Prop 45 and 46, vast sums will be expended on TV, radio, and other advertising as Election Day approaches.2 And you can already assume that the sponsors of these propositions spent $1-$2 million just to hire commercial signature gatherers to put these initiatives on the ballot.

    Naturally, there is much at stake for the proponents and opponents of these ballot propositions. And, of course, anything related to health care is topical these days because of the changes the health system is undergoing at the national level. Those in the policy wonk world and those representing the major interest groups involved are obviously aware of the initiatives and have been aware since the petitions to put them on the ballot began to circulate. But it is reasonable to assume that the general public had little knowledge of the propositions and are only now – as advertising has begun and news media articles are appearing – forming opinions.

    One of the major sources of public opinion polling information in California is the Field Poll which for many years has been a source of political information on attitudes toward public issues. Like all pollsters, however, to be relevant and interesting, Field has to track opinions on what voters might be feeling about ballot issues and candidates. But that need poses a dilemma, since Field must produce opinions about issues on which many in the public simply don’t have formed opinions. So in one way or another, it must tell those being surveyed what the issues are all about. What it says is and how it says it is going to be important in determining the answers received.

    As the table above from the Field poll shows, there was a dramatic swing in reported voter attitudes towards Prop 45 and 46 between late June/early July and late August/early September.3 In the earlier survey, the two were reported as favored by 69% and 58%, respectfully. A couple of months later, the percentages had dropped to 41% and 34%. Note that in the earlier survey, 15% and 12% said they were undecided. A couple months later, a lot of folks who were decided early on apparently changed their minds concerning what they were decided about. And the really heavy advertising regarding the two propositions had not begun in that interval.

    Let’s put aside the merits and demerits of the two ballot propositions. It should be obvious that when dealing with issues in which there will be controversy as the election approaches, early polling is not very helpful as a forecast unless you can present the questions as voters will eventually hear them. QED

  • 08 Sep 2014 12:56 PM | Daniel J.B. Mitchell (Administrator)

    On September 5, the latest “Employment Situation” release for August became available from the U.S. Bureau of Labor Statistics (BLS). One of the closely watched numbers in that release is the latest month-to-month (July to August) change in nonfarm payroll employment. According to the release, the preliminary seasonally adjusted estimate is that there was a net increase of 142,000 jobs in August. Commentators immediately pronounced this number to be disappointing because it was lower than (someone) expected and lower than recent employment gains.

    Download this week's Musing.

    Some readers may recall the Al Jolson’s line from The Jazz Singer, “Wait a minute; wait a minute, you ain’t heard nothing yet.” (If not, go to or watch here.)

    The problem with getting excited or disappointed as a result of the reported monthly change in employment is that the preliminary data, which already reflect the vagaries of seasonal adjustment, are subject to major revision. So we need to stand back and “wait a minute” before reading the monthly figures as guides to policy or to the general state of the economy. Maybe we haven’t heard “nothing” when we get the monthly number, but the “something” we have heard is pretty fuzzy.

    The chart below shows the reported preliminary monthly changes for 2013 versus what now (as of September 2014) appears on the BLS website:

    As it turned out for 2013, not only are the deviations of the preliminary figures relative to the current figures large, but they don’t even average out over that year. That is, except for July 2013, the preliminary numbers consistently understated what is now taken to be the true figure. Only in July 2013 was there an overestimate. Almost all of 2013, as seen initially, was disappointing relative to 2013 as seen today. The average error was a monthly understatement of about 30,000 jobs, i.e., something like 360,000 jobs over the year.

    In past musings, I have made the heretical statement that maybe we don’t really need monthly releases and maybe, say, quarterly releases would be better. Of course, we will continue to do monthly releases because that’s how it has always been. Moreover, any change in frequency would become the subject of conspiracy theories about manipulated figures. But it would be nice if commentators just focused on changes over longer periods than just one month. Why not use August 2013 to August 2014 (a full year)? If you do it that way – and use just the numbers that are not seasonally adjusted since you are covering a full year – it turns out that we are creating net jobs per month at a rate of around 209,000. You can then decide whether that number is disappointing or not and what policy response, if any, should be taken. You may be right or wrong in your thinking but at least you won’t be basing it on statistical noise.


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