Yes, You Do Have to Spell It Out

Today, the Department of Education released it’s mammoth report card on the nation’s schools: the National Assessment of Educational Progress, or NEAP. From the Washington Post: “Administered to a representative sample of students nationwide, the NAEP tests are widely regarded as the most objective and independent assessment of educational progress. While the congressionally mandated test has been in existence since 1969, this is the first year it has been made compulsory for all 50 states under the Bush administration’s No Child Left Behind educational reform measures.”

Reading skills held steady. As for math, the good news is that our students have had solid improvements since 2000, particularly in basic skills. The bad news is that less than a third of the 4th and 8th grade students tested were “proficient” at math.

If you are in a position to hire people who need math skills, this should scare the socks off you.

Needless to say, some states are touting their own scores from this massive document. Some are calling attention to how poor the scores are. Critics call the test flawed inasmuch as students are meeting state criteria but not Federal criteria. And still others point to the fact that the tests were administered to a “representative sample,” not to every student.

The most sensible statement regarding these scores came from middle school teacher and standards writer Betsy Wiens: “Obviously we’re not there yet, but change is not going to be quick. When you change a system, it just takes time.” She is of course correct. It took our schools decades to get where they are today, and it will take years to meaningfully improve them. There is no magic bullet: neither zero-tolerance policies nor school uniforms nor standardized tests nor vouchers nor charter schools nor willy-nilly increases in school expenditures will make kids proficient in reading and math.

We must commit to the idea that schools could be better. We must commit to the idea that getting better means making changes that not everyone will like and that may not be convenient for everyone. We need to commit to abandoning things that do not work, things that do not educate children. We must commit to the fact that learning is more than showing up, that graduation rates have nothing to do with literacy rates. We must commit to the idea that “reform” is more than handing down a set of rules and objectives and then walking away, smug in the trust that such words on paper will magically improve our schools.

We must begin with the fundamental idea that from this day forward, the fundamental purpose of schools, from Grade School to Grad School, will be to educate our children.

Our future depends on it.

Veterans Day

Happy Veterans Day. For my foriegn readers, this is a day when we remember and show respect for the veterans of our armed forces who have served our country. Many schoolchildren, government workers, and some lucky folks in private industry get the day off.

But this year, the parades are scant. The vast majority of our servicemen are too busy defending the country’s interests to march parades in their honor.

Reservists have been called up, and more are being called up to serve full time. These troops are at higher risk of being injured on duty. They leave behind jobs that need to be done and families that need to be fed. Medical personnel are among those whose short term plans are being rewritten by the military. It has been said before but bears repeating: “So much for one weekend a month and two weeks a year.”

These reservists may not even be sufficient. There is loose talk of reinstating the draft. This should be enough to make young men aged 18-26 sit up and vote. Oh, and I did mention medical personnel in the last paragraph: Doctors can be drafted until age 35. In the 2004 elections, will Bush will be so eager to make sure all those no-postmark military absentee votes are counted?

Remember, every young man called up artificially creates a job, making it seem like the economy is in better shape than it really is.

When our troops get to Iraq, they face unknown enemies on every side, aided and abetted by a 70% unemployment rate and contracts with American companies that effectively funnel money out of the country. As I write, 398 American troops have been killed in Iraq, 37 of them in the first week of November. The sobering truth is that we are almost certain to celebrate Thanksgiving knowing over 400 of our soldiers have died in Iraq.

Back home, soldiers’ families face certain grim realities. Even soldiers who get leave might not make it home to see their loved ones. Combat pay may be reduced. Commissaries (low cost on-base stores which make it possible to raise a family on an enlisted man’s salary) are being closed in “remote areas” — places there are few stores to begin with. Schools on military bases risk closure. Apparently the Administration feels “No Child Left Behind” doesn’t apply to the children of the very men who makes their rule possible. Veterans Administration health benefits are underfunded.

Finally, dissent within the military is not tolerated. We are not talking about disobeying legal orders, we are talking about thinking on one’s own time.

Every true Patriot, if you will excuse the pun, should read what Al Gore had to say over the weekend. Agree or disagree as you like. He is not running for any office, and thus has little to gain or lose by saying what he thinks. Or, to use his words, “So, is that fine with everyone?”

Support our troops: pray for peace.

As I Was Saying Yesterday

Of course it is a coincidence that today it was announced that 43000 Reservists are being called up and there are 43000 fewer first time unemployment claims this week than last week. Please notice that this chart makes an monumental bit of statistical propaganda: the horizontal base does not start at zero, making it appear that there are almost no newly unemployed people this week. Of course there are 384000 people who know better.

The Economy Improved and All I Got was this Lousy T-Shirt

Of course, I could bore you to tears with anecdotal reports of the unemployed, the underemployed, the hard luck stories of people who really want to work if only The System would give them a chance. Go ahead, it’s okay to cry.

And remember, this is in a recovering economy.

The hard cold facts remain as follows:

Unemployment is not getting better, puzzling economists. Fair disclosure, things are worse in Europe. That doesn’t really change the fact that some economists are no longer buying the idea that employment is a lagging indicator, productivity gains are taking up the slack, and surely the “now hiring” signs will go up everywhere any minute now.

Actual employment figures are quite dismal in certain places and among certain demographics. Unemployment figures measure the percentage of people looking for work, but do not include people who have given up on finding a job, or who decide to become (semi-employed) contractors. First Time Jobless Claims represent the number of poeple who walk into the local unemployment office each week and sadly proclaim that they have just lost their job, but do not include most former part-timers and many upper income unemployeds who just don’t feel the meager payout is going to make a difference. By contrast, Employment figures represent the percentage of people actually holding down a job. Or two or three. There is little room for fluff in this number.

Charity giving is down while need of charity is increasing. Be ready to hear this drum beating throughout the holiday season. That’s only because it’s true.

Almost 3 million manufacturing jobs have vanished. Many have gone to countries with lower wages, no benefits, little regulation, and no need to consider pollution. The nicest thing that can possibly be said about this trend is that the pittance of a wage they are given is still more than they would make in most of the locally originating jobs. I do not know whether there are figures to support or dispute the idea that such job export might reduce the number of illegal aliens that come to the United States.

Almost any other job that does not require laying hands on a physical object in the United States is following. You’ve heard about outsourcing computer programming and customer support to such nations as India, haven’t you? Many high tech jobs and financial industry jobs with American companies are moving overseas to take advantage of lower cost labor.

Unemployment, particularly long term unemployment, is no longer unusual in the middle and upper classes. Long term unemployment isn’t just for drifters, losers, and people with “problems” like mental health issues or broken down cars or unreliable babysitters anymore. It can happen to degreed professionals, people with computer skills, people who thought their specialized training was job security incarnate.

Heck, even jobs that require being in the States are being done by legal and illegal aliens where posible. Remember that things are worse in Europe? That’s part of the reason Wal-Mart’s contractors were able to snap up European illegal immigrants to clean the stores after hours. Then of course there are the nice people who don’t speak English that you may have seen mowing lawns or doing other menial jobs you personally would have to be starving to take. Richard D. Lamm, former Governor of Colorado, seems to have summed it up nicely when he says “Illegal immigrants compete for the jobs our own poor need to start to move up the economic ladder.” Later he adds: “We are told that illegal immigration is ”cheap labor,” but it is not ”cheap labor,” it is subsidized labor.  The National Academy of Sciences has found that there is a significant fiscal drain on U.S. taxpayers for each adult immigrant without a high school education.  Illegal immigration is something that benefits a few employers, but the rest of us subsidize that labor through the school system, the health-care system, the courts and in other ways that this form of labor imposes.”

The only sector of the American economy that seems to be growing is the “services” sector. This sector includes architects and other service providing professionals. However, it also includes every job that involves such phrases as “Would you like fries with that?” or “Paper or Plastic?” or “Can you read me the model number and serial number please?”

Wages are not going up, and Americans in general report that “Things are tough all over.” People don’t want to complain when they are actually working, but things are getting tight. The lucky people with jobs do not have extra money lying around for anything that is not absolutely necessary. Retailers should feel this trend pinch them very soon. Read it and weep: “According to the poll of nearly 1,000 consumers nationwide, almost 58% said they would spend less than they did last year and 50% said the cutbacks are due to current economic conditions. More than 18% said they’re spending less because they’re earning less — a 4% increase over last year. Over 66% said they’re spending less because they are carrying too much debt, down from 70% last year.”

Many among our “working class” are underemployed. They are struggling to make ends meet. They are taking part time jobs that they hope will put then higher on the list for eventual full time jobs. They are taking two and three part time jobs to survive. This means, by the way, that they are doing without benifits: no health insurance, no retirement plan, no unemployment benefits when they get downsized.

The United States Military plays a perverse role in unemployment. Anybody who has ever lived in a city that had a military base close knows base closures can have an absolutely horrifying effect on the local economy. Now keep in mind that “[The] United States [is] approach[ing] 2005, when “the mother of all base closures,” is planned, said Brian N. Hamel, president and chief executive officer of the Loring Development Authority. In 2005, more closings are expected to occur at one time than in all previous rounds combined.” But wait, there’s more! Do you remember all those reservists that got called up over Iraq and the “War on Terror”? Well, those people left behind jobs too — jobs that had to be done by somebody. Those jobs are now being handled by co-workers putting in overtime, or by temporary workers. Either way, the unemployment rate is artifically lowered by every reservist who was asked to serve his country. Some of them were among the 6000 that just came home on the Nimitz. More are being called up as we speak.

In short, it is a bit premature for the Democratic contenders to stop harping on Bush’s economic policies.

No Need to Worry

The Consumer Product Safety Commission, a Federal agency charged with making sure products you buy are safe, came out with an important ruling today. They have decided not to ban the use of arsenic in the manufacture of pressure treated lumber. They claim this decision is based on the fact that few manufacturers use arsenic anymore.

Pressure treated lumber is used in many outdoor applications. That’s because it is resistant to rot and insect damage. But one of the major uses for treated lumber is children’s playground equipment: it’s softer than plastic or metal, and doesn’t get as hot or cold either. Even the CPSC admits that arsenic treated lumber poses a hazard to children when used in playground equipment, citing “an increased risk of lung or bladder cancer for people who played on such playground equipment as children.” Furthermore, the stuff has become an ongoing headache for communities both as they try to determine how much contaminated playground equipment they have, and as they attempt to dispose of arsenic tainted wood.

So lets make sure we understand the CPSC’s position: arsenic treated lumber is dangerous, but it’s okay to continue making it because almost nobody makes it anymore.

Granted, the EPA has already said it cannot be made after the end of the year, but sellers are allowed to deplete their stock, and frankly I fail to see where the EPA has outlawed importing the stuff. What possible reason could the CPSA have for not keeping in line with the EPA decision? For pity sake, the EPA decided it was bad, and this is the same EPA that decided it was alright to relax sewage treatment rules and approves thousands of untested chemicals for household use.

This isn’t the only government agency that has said we need not change the rules because nobody uses them. Attorney General John Ashcroft’s Department of Justice is playing the same semantic game with respect to Section 215 of the PATRIOT Act. Section 215 is the portion which (among other things) allows the FBI to check your library records, with reduced warrant requirements, and without anybody being allowed to tell you.

Ashcroft claims there is no need to fix this egregious breech of 4th Amendment rights because after all, Section 215 has never been used. Most of America replies “Good! Then you won’t miss it if we take it away!” Ashcroft counters “But I might need it someday.”

Right, just like those roller blades you bought 5 years ago thinking you would get in shape, but all they do is gather dust in a closet. Get rid of them now: just like Ashcroft’s pet legislation, you will only get hurt if you use them. Just ask Monica Lewinsky, Linda Tripp, and Valerie Plame about the importance of privacy.

Melting Money

Maybe you missed the latest mutual fund scandal. This one could still cost you money, even if you don’t own the funds in question.

Putnam Investments, a division of insurance company Marsh & McLennan, runs a bunch of mutual funds. At the last date of record, they had about $272 Billion in assets, spread across 12 million customers, about 700 of which were “institutional investors” — large accounts such as states and pension funds. As you will see, these figures are apt to drop rapidly. Keep in mind that the mutual fund industry as a whole is about $7 Trillion, and that 95-100 million Americans have money in mutual funds. This fund family is something like 3% of the industry.

As CNBC so politely puts it, “Putnam is facing a probe into improper mutual fund trading and losing some clients.” Two managers are accused of civil fraud, and that’s before the U.S. Attorney sent subpeonas. The SEC and Massachusetts are surely only the first to get in on this action; sabre-rattling between SEC Chairman William Donaldson and New York Attorney General Eliott Spitzer has already commenced.

The crux of the matter is something called “market timing.” By this we do not mean waiting for a stock to hit the “right price” before buying or selling — something totally legal that almost all stock owners do. Some people say the benign label of “market timing” whitewashes what it really is: fraud; stealing from the customer.

There have been a number of illegal and unethical “market timing” schemes used. One involves buying or selling after market hours, after some bit of important news has been released perhaps, at the closing price. Example: XYZ Corporation announces blowout earnings after the market is closed; Unethical Fund Manager Dewey Cheatum colludes with another fund to buy at the closing price (when nobody knew the news) so he can sell it in the morning for a few dollars profit per share. In a variation of this scheme, a manager uses international stocks — which trade at different hours than American stocks. Yet another “market timing” scheme involves detecting brief inconsistencies between where another fund is trading and its NAV (Net Asset Value, what it is worth), then exploiting this difference with rapid trades (scroll down) in and out of the fund.

Several Putnam employees are accused of illegal market timing, and more charges are likely to come down soon. This problem apparently was investigated internally as early as 1996, and little was done save to issue official policies declaring it a no-no. The trades in question are from 1998 and 2000, a period of time when the funds in question underperformed. Wouldn’t you be upset if your fund was losing money and yet the managers of the fund were pocketing $700,000 from personal trades? Wouldn’t you think they should put their money right next to yours and execute the best deals for the fund they are paid to run?

Some large investors think so. And they are speaking with their wallets. Massachusetts wants to pull $1.7 Billion. Rhode Island, $651 Million. Iowa, $594 Million. Connecticut, $277 Million. Well over a Billion from such sources as The Pennsylvania Public School Employees’ Retirement System, The New York State Teachers’ Retirement System, The Vermont State Teachers’ Retirement System and others. An even longer list of behemoth investors are “monitoring developments.” It could add up to some real money!

Frankly, the markets could get a bit bumpy. I seriously doubt Putnam has $4-5 Billion in cash sitting around to send to these big investors. That means they are going to have to sell stuff, and to sell that much is going to drive some prices down. That’s why this could cost you money if you own any stocks or stock-holding mutual funds. A savvy investor might make some quick money if he could take a billion or so worth of a top holding off Putnam’s hands.

And yet in the midst of all this, there are those who say not to drop these guys like a hot potato. When would be a better time? When all the institutions have gotten out, having forced the managers to sell absolutely everything at stupidly low prices and driving the value of all Putnam’s holdings down? When the NAV is so low that Joe Average can’t afford to sell his worthless holdings?

As if all this isn’t bad enough, remember that Putnam isn’t the only fund family whose managers stand accused of making trades that line their wallets and leave investors holding the bag.

7.2?

No, that’s not the Richter Scale rating of the latest earthquake in Farawayistan. That’s the annualized rate of growth that the United States’ economy allegedly had in the third quarter. It happens to be the biggest surge in the Gross Domestic Product since the Reagan Administration.

But if the economy is growing that fast, where are the blowout profits from Wall Street? If we really spend 15% more on computers and software last quarter than the previous quarter, why didn’t all the computer and software companies announce a spectacular quarter?

Where are the expanding small businesses? Shouldn’t they be hiring? Are we really to believe that there was so much overcapacity that they don’t need to be buying office supplies and building bigger facilities?

And what about the consumer? They are refinancing the house like crazy, but that can’t last forever; will they be buried in debt when interest rates inevitably rise again? And if we really bought almost 27% more cars than in the previous quarter, what are we doing with all the used cars? Why aren’t the car makers posting, say, 15-20% greater profits? Supposedly those $400 child tax credit checks made a big difference. Even if it did, that won’t happen again this quarter.

As I write, the Dow and NASDAQ are up half a percent, and the S&P 500 is pretty much flat. I do not believe the markets anticipated such a high GDP number. Just yesterday the FOMC said there would be no change in interest rates in the foreseeable future, and I have every reason to think Greenspan had this figure handy. Therefore, the markets are not anticipating that the higher GDP will immediately cause interest rates to rise. That leaves the possibility that Wall Street does not think this is real. Or rather, investors do not think that the fortunes of publicly traded companies will be beneficially effected. Let me get this straight, the economy is great but business is not improving?

Where is the money going? Some of it went overseas in the form of a reduced trade deficit and reduced exchange rate for the dollar. That doesn’t really help Joe Average, who will now have to pay more for everything imported. Some of the growth represents “inventory drop,” or the sale of stuff that has been sitting in the warehouse for a while. The people and suppliers who made this stockpile possible were paid some time ago.

The fact that the number of jobs out there is still declining should make us question this high GDP number. Clearly one trend or the other is not sustainable.

Fair Use?

Yesterday, the Librarian of Congress issued some rules clarifying the scope of the DMCA. For those who don’t keep track of this stuff, the Digital Millenium Copyright Act essentially reiterates that making and distributing illegal copies of copyrighted works is illegal. Furthermore, it makes devices that circumvent copy protection and Digital Rights Management (DRM) illegal. This has resulted in some amusing cases where permanent markers and computer shift keys are technically illegal. This is the law that got Dmitri Skylarov* in trouble a couple of years ago.

To be brief, there are 4 exemptions:

1) It is legal to publish a list of internet sites blacklisted by filtering software. This is considered crucially important for determining whether such filters work adequately without unduly restricting access. It is also vital for preventing ideological abuse of such filters, for example blacklisting materials on unpopular but legal political groups.

2) It is legal to circumvent a damaged, obsolete “dongle”. How annoying would it be to lose access to a possibly expensive computer program just because some little gizmo got broken and the company that made it is out of business!

3) It is legal to emulate obsolete programs that ran on obsolete hardware.
 Go ahead, get out the old Apple II disks. Or, here’s something you might enjoy.

4) It is legal to circumvent copy protection of eBooks for the purpose of access by the handicapped. What Skylarov did is now unambiguously legal, so there.

One interesting aspect of these guidelines is that not one of them will cost copyright holders any money. Heck, two of the rules specifically deal with materials not for sale anywhere at any price. Indeed, the rule allowing circumvention for handicapped access may increase eBook sales.

DMCA is still an over-reaching behemoth of a law, and it still needs to be cut down to size. Nevertheless, these four guidelines are a good first step.

*If you are not familiar with this case, please feel free to read up. The way I used to explain it back in the day was that Skylarov was a Russian citizen arrested in the United States for violating a law of the United States while in Russia.

Merge!

This is one of those days in the markets when you can’t tell the players without a scorecard.

* Bank of America buys FleetBoston for $47 Billion, in a deal which might result in you receiving more financially oriented junk mail. If you honestly believe this deal will pass regulatory scrutiny and come to pass, you stand to make about $5 per share by buying now, at about $39.50 per share, and waiting until the deal finally closes to be paid $45 worth of B of A stock. This spread indicates that the experts do not think it will come to pass, at least not in a timely manner: they could make more money elsewhere.

* Anthem is buying WellPoint for a mere $16 Billion and creating the nation’s largest HMO and covering 26 million people. Oh yeah, and Anthem was able to make a cool profit of $196 Million last quarter. WellPoint announced $176 Million in earnings last quarter. This represents overcharged customers. If you think this will make healthcare cheaper or bring medical care to underserved areas, I have a bridge in New York City I’d like to sell you.

* Not enough medical mergers you say? Then how about United Health buying Mid-Atlantic Medical for $3 Billion? Oh yeah, and United Health reported $476 Million in earnings in just 3 months — almost a half billion dollars. Hurry up, I may not be able to hold that bridge any longer without your deposit.

* For you tech lovers, don’t forget Symantec buying ON Technology for $100 Million in cool cash. Nothing brings security to a nearly monopolistic operating system like a nearly monopolistic computer security vendor. I do not begrudge Symantec their $83 Million profit; nobody is striking or mounting political campaigns on the high cost of computer security software.

* Finally, for that international flair, InterActive would like to buy the French company Anyway.com for a mere $62 Million. And here I had been told the French were very must against Anglicized names.

These are, of course, just the big deals. The ones that people are paying attention to. If it weren’t for these, you might hear about one or two smaller deals that simply aren’t perceived as being that important.

Mergers, like many other things on Wall Street, make a lot of money for some people — mostly bankers and lawyers — on Wall Street. But they are not always good, and even when they are good, they are not good for everyone. MCI-Worldcom, Cendant, Travellers-Citibank, and AOL-TimeWarner come to mind.

This is a game you don’t want to play without an exit plan.

Yo, Word™ to the Office™

Have you heard about the new version of Microsoft Office? Microsoft bets $150 Million you have. The rollout has been accompanied by a massive marketing campaign and a media blitz. Frankly you’d have to be living in a cave — or using a Macintosh — not to have noticed.

Office accounts for a third of Microsoft’s revenues: over $9 Billion dollars annually. It has a huge operating margins too. That being the case, $150 Million in advertising for the new version doesn’t seem like that big a deal, even as part of a half billion dollar marketing budget. But the problem is how to get perfectly happy users to spend $400 on the new version, particularly in an economy that is mediocre at best. In fact, about a third of the registered users haven’t upgraded since 1997. Add more features? Most users only use a fifth of the available features anyway according to Microsoft’s own research.

Badmouthing the old product and adding dubious features most people will never use hardly seems a good answer, particularly considering that Office historically has a large piracy problem. Touting enhanced security will not make people magically flock to the new product either, since most technically literate people believe Microsoft should have made it more secure in the first place.

I think many of us would appreciate an “Office Lite” product: give us the 20-25% most commonly used features of Office for $100. It needs to create and read the major standard filetypes for Word and Excel, it needs a secure but simple email client, and for the sake of argument a stripped down PowerPoint. In an ideal world, it should take up significantly less than 481 megabytes of hard drive space, have a relatively low RAM requirement, and be zippy enough to use on older systems without pain. Oh, and “Help” should not launch Internet Explorer. It is arrogant to assume that the sort of user who chooses this product wants to be connected to the internet every time he or she needs to figure out a new command. There should also be a clear upgrade path to the full product.

Most people simply don’t need half of Office has to offer, and the new version does not make that better. What a shame that most school computer classes seem to revolve around how to use Microsoft products. I would rather see kids learning to program computers than learning to put together PowerPoint presentations. It will be over a decade before this trend impacts Microsoft’s potential pool of programmers.