Indian Milkmen and Public School Administrators

Recently the Wall Street Journal told the tale of former Indian milk deliveryman D.T. Walkar who faithfully comes each day to the Worli Dairy to NOT deliver milk:

Most days, he and his fellow drivers at the government dairy sign in, then move to the rest area. While others read the paper, nap or play rummy, Mr. Walkar likes to do the Sudoku puzzle in the Maharashtra Times, unless someone else has gotten to it first. He then wanders around the complex and talks to friends. The last delivery trucks were sold last year. “The trucks are all gone so we just sit around and talk,” says Mr. Walkar, 50 years old. “We are bored.”

Have Indians stopped drinking milk? Hardly, it is still a key ingredient in Indian cooking and in religious rituals. So what happened? The Wall Street Journal explains:

In 2001, the Indian government started opening the dairy market in Maharashtra to competition. Private carriers with higher quality milk swiftly won customers by delivering milk to doorsteps. The government milkmen have always been restricted to delivering mostly to curbside milk stalls so they could cover a greater area.

At the same time government workers are protected from layoffs– Walkar is reluctant to move to the private sector because he claims he needs the government housing his job provides and so Walker sits every day with nothing to do until he can retire in about 8 years.

As I read this essay—poignant in its description of human energy being wasted—I began to think of American “milkmen.” The first group that came to mind was public school administrators.

No, I am not claiming that public school administrators “read the paper, nap or play rummy.” No doubt though, most schools would be better off if that is all that they did—after all, ask many public school teachers and they will tell you that any effective teaching that they accomplish in their classrooms is frequently done despite the interference of administrators.

Former New York State teacher of the year John Taylor Gatto has been a harsh critic of public schools. He tells a tale about complaining about waste while he was still a teacher:

An assistant principal once said to me, “It’s not your money. What are you getting excited about?”

What if I told you that he was the second best school administrator I met in thirty years? He was. That’s the standard we’ve established. The waste in schools is staggering. People are hired and titles created for jobs nobody needs. There’s waste in services, waste in precious time spent moving herds of children back and forth through corridors at the sound of a horn. In my experience, poor schools waste much more than rich schools, and rich schools waste more than you could believe.

The only public aspect of these places is that they function as a jobs project, although large numbers of these jobs are set aside as political patronage. Public schools can’t understand how the average private school can make profit on a per-seat cost less than half the “free” public charge; they can’t understand how the average religious school makes do on even less.

The answer is of course that their administrative costs are a fraction of the administrative costs in public schools. Not only that, but also they are free to innovate without the stifling rigidity that only layers of bureaucracy can provide.

Back to India—in monopoly conditions, it made perfect sense to milk industry bureaucrats that milk be delivered only to centrally located, unrefrigerated, broken-down stalls and not to homes; and it made perfect sense that the quality of their product could not be improved.

Once we reflect on Indian milkmen, we can understand why the public school lobbyists fight so hard against any form of school choice for parents. Simply put, once parents have a choice, many of the choices that school administrators and politicians have made will not stand. These are just a few of the conditions that can only exist under the near-monopoly that public schools enjoy:

• Funding a large, bloated bureaucracy.
• Using quick fixes for disruptive behavior, like helping to place almost five million school children on Ritalin—which some researchers say has a more potent effect on the brain than cocaine.
• Operating many urban schools without providing a basic, safe environment for learning.
• Designing curricula that leave many high school graduates unable to handle college level work and unable to compete for employment opportunities that exist in a post manufacturing society.
• Designing curricula that leave may high school graduates ignorant of the basic principles of political and economic liberty.

Even the veteran insider, the late and former American Federation of Teachers President, Al Shanker has observed:

It’s time to admit that public education operates like a planned economy, a bureaucratic system in which everybody’s role is spelled out in advance and there are few incentives for innovation and productivity. It’s no surprise that our school system doesn’t improve: It more resembles the communist economy than our own market economy.

One day, American consumers of schools, like the “liberated” consumers of milk in India, will have a choice. No doubt, we will be told that the redundant school administrators have to be kept on the payroll anyway. And just like the Indian milkmen, most will choose to put in their time until retirement. When that day comes, at least we can be thankful that, like the Indian milkmen, they will be no longer serving up a sub-standard product.

The Sorrows of Ethanol

In 2000, I began to realize what a monster ethanol was becoming. Bill Bradley was seeking the Democratic nomination for president. Although I disagreed with Bradley on many things, I had always admired his principled stands on issues. As a senator, he had always opposed subsidies for ethanol. Shortly into the primary season, he “revaluated” his ethanol stand and decided he was in favor of ethanol subsidies—so much for Bradley being a man of principle.

One of the major beneficiaries of ethanol subsidies has been Archer Daniels Midland (ADM). They receive billions of dollars of government subsidies a year. The Cato Institute has called ADM one the biggest recipient of corporate welfare. To insure that their welfare keeps flowing, ADM gives generously to political candidates of both political parties. All three remaining candidates—John McCain, Barack Obama, and Hillary Clinton—support the continuation of these subsidies. For that alone, all three are unqualified to be president.

All three value their political future more than the environment, the food supply, and the health and welfare of billions of individuals. If you think that is hyperbole read on.

In previous posts, I have covered some of the more harmful environmental effects of ethanol, such as its effects on aquifers. In another post, I observed that ethanol is a creation of a complex set of subsidies, and—like nuclear power—it would not thrive on a free-market. This subsidization drains away capital from entrepreneurs who are seeking to discover new, viable forms of alternative energy.

Astonishingly, ethanol is being produced by ADM in coal fired plants that produce significant amounts of pollution. According to many, including UC Berkeley geo-engineering professor Tad Patzek, making ethanol uses up to six times more energy than the finished fuel itself generates—for a net loss of energy. This is precisely why ethanol would not exist on a free-market.

OK, so what do we have so far: we have a fuel that wastes energy, helps to destroy the environment, draws investment funds away from the discovery of real alternative fuels, costs the taxpayer billions, and corrupts many politicians. Is there anything else? Unfortunately, yes. Ethanol, along with the current housing crisis, is threatening to push food prices beyond the reach of billions.

Before we go any further, you may be scratching your head over how our current housing crisis is inflating food prices. Every time the Fed bailouts a Bears Stearns, it monetizes private securities and increases the money supply. The money has to go somewhere, and one of the places it is going is to hedge funds that are helping to create a commodities bubble.

Of course, perhaps the major culprit in the commodities bubble is ethanol. According to The Economist in 2007:

Biofuels (took) a third of America’s (record) maize harvest. That affects food markets directly: fill up an SUV’s fuel tank with ethanol and you have used enough maize to feed a person for a year. And it affects them indirectly, as farmers switch to maize from other crops. The 30m tons of extra maize going to ethanol this year amounts to half the fall in the world’s overall grain stocks.

Rice and wheat prices have at least doubled in the past year. The Economist’s food-price index has jumped in real terms by 75% since 2005. Rising food prices have led to riots in recent weeks in Haiti, Indonesia, and Africa. In Haiti, many have been reduced to eating cookies made from mud.

My wife came home today and told me she paid $5.29 a pound for kale. Green vegetables are a staple in my family’s diet, and we will cut back on other spending before we reduce our consumption of vegetables. Others are not as fortunate, they will fill their bellies with cheaper, processed food. In that way, subsidies toward ethanol will also contribute to rising health care costs.

McCain, Obama, and Clinton argue over who is the real elitist. They can all proudly wear that title. While they enjoy a standard of living that few who have ever walked this earth have enjoyed, they support policies that make many go hungry and sicken others.

What is a voter to do? Hug your children, walk in the woods, read a good book, help a neighbor or a colleague. These three candidates don’t deserve your time, attention, or energy. All you need to know about the three of them is that they all support continued subsidies for ethanol. How sad that our great country faces a choice like this.

On Thinking Good Thoughts

A student recently recommended the site of motivational speaker Mark Matteson. In his April e-zine “What If You Didn’t Know?” Matteson begins:

One of my favorite stories is about the architect who finally got his first big job. He decided to have a giant party to celebrate and went to a neighborhood bar to make arrangements. He noticed a Newspaper headline that read, “Hard Times Coming!” He changed his mind. No party. “Haven’t you heard?” he told the owner, “hard times coming.” He called his wife, “You know that dress you ordered for the party, cancel it. Hard times coming.” The wife called the dressmaker and cancelled the new dress. Hard times coming. The dressmaker called the new building where she was going to open her new space. Cancel the space. Hard times coming. The developer called the architect. Tenants are bailing out. I can’t hire you after all. Hard times coming. The architect went back to the same bar to drown his sorrows. He spotted the paper across the room. The headline looked five times larger now. He got up for a closer look. The paper lay wrinkled in a corner. It had been used to wrap glasses and dishes. Upon closer inspection, the paper was 20 years old!

I am not without sympathy to Matteson’s ideas. We can be hypnotized by what we hear on the news—a sort of societal contagion, if you will. Equally true, if we sit around complaining and bemoaning our fate, that tends to create a self-fulfilling prophecy. As Thomas Jefferson said, “I’m a great believer in luck, and I find the harder I work, the more I have of it.”

Although Matteson’s type of thinking is becoming pop wisdom in society—just witness the phenomenon of The Secret—popularity is not enough to establish the truth of what he argues.

Does our thinking control real world events? Matteson ends his essay by writing: “Do you think ‘Hard Times Are Coming?’ If you do, they will. If you don’t and they won’t. We become what we think about. What if you didn’t know?”

While it is clear that our thinking does influences our experience of events, our thinking does not control events. And thank goodness it doesn’t. Reflect for just a moment on your thinking over the past hour—like most of us, your mind probably flitted from topic to topic. Many of your thoughts were fragmentary; and very likely, there were more than a few of your thoughts that you would be embarrassed to share.

Let’s take it a step further. Can you tell me what your next thought is going to be? Interestingly enough, as you begin to watch your thoughts, that next thought will be elusive—at least for a while. And when your thinking resumes, you will see that thoughts appear; but you are not controlling them.

You do have some control. You control whether or not you ruminate over a thought, and you control whether or not you identify with a thought. Indeed, it is important to understand that you do have these choices to make. If you don’t have this understanding, you are likely to find that your thinking is completely dominated by thoughts coming from your ego. Nevertheless, having this understanding and exercising choices over your thoughts will not allow you to control the world.

There is yet another important implication of Matteson’s essay to reconsider—an implication that no doubt we will hear from many commentators as the current recession worsens. That implication is that if we think positive thoughts, keep believing, and keep spending, the economy will be just fine.

This is about as true as claiming that if we all got up at 2 a.m., the sun would begin to rise at 2 a.m. as well. Day and night cycle according to universal laws; and while the regularity of economies is not as exact, economies are subject to similar cycles.

The causes of these cycles include, as we have been covering in this blog, the artificial creation of bubbles that cannot be sustained by the Fed and governmental policies. But even if the Fed was not interfering in the economy, the economy would still be subject to boom and bust cycles.

Why? All human beings are subject to moods. Some days you simply don’t feel as good as others. For some, these moods may have daily, weekly, monthly, and even longer cyclical components—cycles within cycles.

Societies have collective mood swings too. As the mood of the public ranges from bullishness to bearishness, these moods influence the financial markets. Sometimes these moods become extreme, as shown first in the late 90s by the irrational belief that tech stocks would always go up by 30% a year and then later by the equally irrational belief that housing would always go up by 30% a year. Those who held these irrational beliefs had many arguments why their irrational beliefs were actually quite thoughtful and well-reasoned. When presented with counter-arguments, their rallying cry was “this time it is different.”

It is never different. We leave in a dualistic world—night will always follow day, winter will always follow summer. Economic hard times will always follow irrational economic bubbles—and thinking all the “good” or “positive” thoughts in the world will not prevent that.

Starbucks Says No to Laissez Faire

I do not drink coffee and I have never set foot in a Starbucks. At the same time, I don’t ridicule those who do. As we all do, at times I spend my own money in ways that others would find frivolous.

I don’t think their coffee is overpriced either. People who consume coffee in Starbucks are buying more than a cup of coffee—they are buying the Starbucks experience. Since I don’t consume Starbucks, I won’t attempt to define what the experience is; but needless to say, it is real enough to have become a cultural phenomenon.

While I won’t ridicule those who consume Starbucks, I will ridicule Starbucks. Monday’s Wall Street Journal had an opinion piece by David Boaz of the Cato Institute which details the experience of David and his friend in trying to have printed on their Starbucks gift card the words “Laissez-Faire.” (Starbucks encourages gift cards to be personalized.) David’s friend “was informed that the company couldn’t issue such a card because the wording violated company policy.” David writes:

And so, at my suggestion, my friend went back to the Web site and asked that his card be issued with the phrase “People Not Profits.” Bingo! Starbucks had no problem with that phrase, and the card arrived in a few days.

I wondered just what the company’s standards were. If “laissez-faire” is unacceptably political, how could the socialist slogan “people not profits” be acceptable?

My assistant and I tried to get the company to explain its policy. We started by trying to purchase a card with the phrase “Laissez Faire,” and were rejected as my friend had been. We then asked a company spokesperson why. He suggested that it might be because “laissez-faire” is a foreign phrase. That seemed possible and a reasonable precaution.

So we tried another foreign phrase – “Si Se Puede,” or “Yes we can.” It’s the United Farm Workers slogan, now adopted by Barack Obama’s presidential campaign. That sailed right through. The senator’s political campaign slogan was acceptable.

Since Starbucks finds laissez faire to be offensive, we may speculate a bit about how they might fare in a more regulated environment. First, is it not wasteful that in some major cities, Starbucks are located very close to each other—a few blocks down the street or even across the street? Some might propose strict regulations on how many Starbucks may open in any given area. The free-market protects Starbucks from that interference.

As most of you already know, a specialty coffee costs considerably more than the basic brew at Starbucks. How much more does it cost Starbuck’s to serve a specialty coffee compare to a basic brew? Almost nothing! Of course, customers pay much more for the larger sized servings too. Yet the cost to Starbucks is almost the same regardless of serving size.

So why is the fancy or large drink price so much higher? Starbucks is simply trying to find those consumers who are less price sensitive. If you are a Starbucks’s fan and buy only a basic coffee, be glad the fancy coffee drinkers exist. They help make Starbucks profitable, they help the chain grow, and they help to hold down the price of a basic cup of coffee.

But is this not unfair? Why should consumers buying a grande latte with a shot of amaretto for $4.50 be subsidizing those who drink a plain cup of coffee for $1.50? Why should those who need a bigger size of coffee subsidize those who need less caffeine? If Starbucks finds laissez faire so offensive, perhaps they would agree to have municipal governments setting fair prices for a cup of coffee. If a flavored grande latte contains only 15 cents more of ingredients than a basic cup of coffee—in name of “people not profits”—charge the customer only 15 cents more.

Of course, I am not for any such regulation; and of course, Starbucks isn’t either—which makes their gift card stance more than a bit ridiculous. Talk about biting the hand that feeds you!

Lawless Fed, Lawless Americans

I’ve been viewing the HBO series on John Adams. It is hard not to be struck by the strong belief in principles that the founding fathers were able to articulate and were willing to sacrifice so much for. As regular readers of this blog know, I am alarmed by how rapidly we are squandering our rich inheritance.

For many years, I had been explaining that the knowledge of these principles needs to be “stored” by study and by personal reflection during good economic times. During bad economic times, people lose their heads out of fear. Yet, if enough individuals remain sane—in part because they have stored the seed corn of understanding—then as a society, we weather the crisis. My own fear is that during these past decades of prosperity, we have been squandering—not adding to—our store of the seed corn of understanding. Although we are still at the early stages of our current economic crisis, recent events seem to be bearing out my fear.

Last week in this blog, I wrote of the lawless behavior of the Fed in bailing out Bear Stearns. Taxpayers are to be forgiven if they are more than a bit miffed. As Allan Meltzer, professor of economics at Pittsburgh’s Carnegie Mellon University, observed, “I do not believe the current system can remain if the bankers make the profits and the taxpayers share the losses.”

This week the Bush administration proposed to give the Fed sweeping new powers over the financial system. Yes, the same Fed that helped to create the housing bubble. The same Fed that has engineered, since its creation in 1913, a decline in the purchasing power of the dollar from $1 to 4.59 cents. Gregory Valliere of the Stanford Financial Group aptly draws the parallel that charging the Fed with maintaining market stability “is like putting Eliot Spitzer in charge of the morals division.”

We have gotten the Fed we deserve. We have not understood and accepted the reality of economic cycles. Because of this, the Economist observed in January, 2006, we will ultimately have an ever larger crisis:

How should Mr. Bernanke respond to falling house prices and a sharp economic slowdown when they come? While he is even more opposed than Mr. Greenspan to the idea of restraining asset-price bubbles, he seems just as keen to slash interest rates when bubbles burst to prevent a downturn. He is likely to continue the current asymmetric policy of never raising interest rates to curb rising asset prices, but always cutting rates after prices fall. This is dangerous as it encourages excessive risk taking and allows the imbalances to grow ever larger, making the eventual correction even worse. If the imbalances are to unwind, America needs to accept a period in which domestic demand grows more slowly than output.

Can you imagine Bush, McCain, Obama, or Clinton giving a speech where they explain that our past excesses have created the mess we are in and that more bailouts and cheaper credit are not the way out? The hard truth is that excesses must be liquidated so as to set the conditions for future sustainable growth. You may be thinking that this is not going to happen anytime soon. You are correct.

Even more troubling is that we are seeing early signs of a breakout down in societal norms. Last week the Wall Street Journal ran a front page article about homeowners who have been foreclosed on in Las Vegas. The new trend is for these homeowners to trash the house before they vacate. The article describes such acts of destruction as smashing walls, pouring concrete down toilets, dumped paint on carpets, and leaving behind pets locked in the vacated house.

Rather than being an occasional act, this destruction is becoming so common that banks are offering monetary bribes to foreclosed homeowners if they vacate without first destroying the house. Huh, you might say, how about the “bribe” of staying out of jail? How about the “bribe” of following the dictates of centuries of human morality? Not to worry—if you did destroy the house, banks have declined to press charges. As alarming, some people, such as real estate broker Joe Kraemer, express understanding for the criminal behavior of the foreclosed homeowner:

When you’re losing your dream, and you’re paying all this money to it…and you’re hoping that it’s going to go up, and you’re going to make 100 grand like everybody else did, and it doesn’t happen — you know, people get upset.

You may view a brief Wall Street Journal report on this alarming trend.

So what do we currently have? We have a lawless Fed. We have candidates for the presidency who advocate more lawlessness and who are bound by no principle other than expediency. We have the early stages of a societal breakdown in respect for property. I can point to little that suggests that these trends will change anytime soon—the consequences are likely to be felt for generations.