Monday, February 28, 2005

A tight out pattern

Stealing directly from the Swing State Project via Grassroots PA, a good conservative activist site is the following thing that made me chuckle:

Former Green Party candidate for governor, Michael Morrill, today declared his intention to try out for the position of wide receiver for the Pittsburgh Steelers.

Morrill admits he has no experience in organized football, has only a casual fan’s understanding of the game and at age 50 might be a little slow for the National Football League. When asked why he thought he might be qualified to be a wide receiver for the Steelers, Morrill said he was inspired by four-time Super Bowl Champion Lynn Swann. “If Lynn Swann can run for governor with absolutely no public policy experience, why shouldn’t I be able to try out for the Steelers?” Morrill responded.

Any idea how tall Morrill is as I have doubts about Lee Mays being anything better than a good #3 receiver...

Talking a little more about Pennslyvania politics, I agree with Chris Bowers at MYDD that an active and contested Democratic primary for the Senate seat held by Rick Santorum will most likely produce some positive results for the eventual nominee just due to the combination of free media AND practical experience.

My last PA politics point of the night is that the Bob O'Connoner website review is now available. I don't believe that I can safely drive the work minivan over the silver haired bridge to the 21st and a third century.

Ethical Hookie

I'm home now (still at the back end of a 10 hour day --- fun to arrive at the office at 6:15 AM) as the office is closed due to this odd crystalized ice structure that is falling from the sky. People do not know how to deal with this junk.

Hookie... I love it, especially when the boss encourages it.

Time to wash the stove now.

Sunday, February 27, 2005

How low should they go?

By March 2, 2005, all NFL teams must be under the new salary cap for the league year that encompasses play until after the 2006 Super Bowl. They must stay under the cap for the entire league year or face some pretty severe competitive and economic consequences. The interesting question to me is how far do teams want to go under the cap. Teams like the Minnesota Vikings are pretty boring to look at when we try to see their decision making systems. Teams like the Tennessee Titans who have to cut pretty much their entire high priced talent pool are likewise boring decision making studies as we know what they had to do with little deviation. The interesting case studies on decision making to get at and under the cap when free agency opens up are the teams that started February either a little bit over the cap, or a little bit under the cap as there are plenty of options that could be taken to get under the cap and to create enough space to enter the auction for free agents. This piece will be building off the Football Outsiders binary division of teams' management style into steady state Even Keel and the self-explanatory Boom and Bust. A second axis of offensive or defensive spending will also be used to evaluate decision making styles. Again I will be making the assumptions that teams at least think that they are good judges of their own talent, that players are motivated primarily by money, and teams will want to underpay players for performance while players will want to get overpaid.

When a team wants to shed cap space, there are two main methods. First is to cut players outright as this will leave the cutting team with only the responsibility to account for any and all remaining signing bonuses and non-guaranteed bonueses that have already been paid. The team saves all salaries and non-guaranteed bonuses that have yet to been paid. Ty Law is a prime example of a move of this sort as the Patriots only had to account for $2.7 million dollars in signing bonuses while receiving almost $10 million dollars in reflief from salary, roster and workout bonuses that previously had been credited against the cap. Derrick Mason and Musin Muhhammad are other prominent recent examples of this type of move. Prime candidates for this type of move are veteran players who previously were highly skilled and fairly compensated who are losing their skill with age/injury who only have a year or two left on the contract and high salaries. Plenty of young players early in their contracts with low salaries will be cut, but that is because they are not good enough, this is a different sort of cut entirely.

The other major move is the restructured contract which comes in two components; first is the straight pay cut in which a player realizes that he could not get a better salary on the open market than the new, reduced salary being offered by his current team. Informational fuzziness will lead to some players refusing to take the pay cut because they think that they can get more on the market and therefore be severely disappointed. Informational clarity that a player can get significantly more on the open market may also prompt refusal to take a pay cut, as was the case with Lawyer Milloy getting cut from the Patriots and quickly signing with the Bills. The second category is a restructure where a player takes a salary cut but the money is converted into a signing bonus that can be prorated over the life of a contract. This is an accounting maneuver that shifts some of this year's salary into the future. You can always borrow against the future, but like the Titans are seeing now, it hurts you eventually.

So how deep should a team seek to get under the salary cap? It depends. Boom or Bust teams will exhibit more variation in their depth under the cap as the need to get expensive free agents is time constrained. The Titans right now know that they can not boom, and need to cheapen out, so early on in the free-agent season, they have no real need to go low as they do not see value in signing one or two high priced free agents at this point in their cycle. On the other hand, Boom or Bust teams that think they are on the cusp of being able to win big for a season or two have to clear enough room to add any needed players to their pre-existing, high priced core group. So they may cut deep enough to be legit players in the first fortnight of free agency. Bad Boom or Bust teams are seeking to develop a core of highly talented players for future years, and also create a predictable cap surplus in the future to be able to Boom. Good Boom or Bust teams are seeking to win now, and pay later. Even Keel teams should go far enough under the cap to defend their tenders, and add relativel bargain free agents. Even Keel teams should exhibit less variation in their annual behavior at this time. I am not saying that the Even Keel teams will never seek to sign an expensive player, as the Patriots traded for Corey Dillon and the Eagles traded for Terrell Owens and Jevon Kearse but these are unusual events AND comparatively cheap signings given the talent levels of the players involved.

Now the next question is how aggressive does a team want to either high priced free agents OR players under tender with other teams. If a team intends to aggressively go after free agents and tendered players, they need to clear enough cap space to send a credible signal to any player that they are negoatiating with that they can sign them to a high value deal. If a team is trying to sign speak with a tendered player who wants to leave their current team, plenty of cap space is a good signal that the offering team can and will make an offer that is extremely hard to match. On the other hand, a team that wants to defend its tendered players, especially its restricted free agents need to have enough initial cap room clear to credibly scare other teams off by being able to easily and quickly match any reasonable offer. This will let the defending team resign their tenders at below market rates if they can scare other teams away from giving market rate offers. Teams that are active in their pursuit or defense of tendered players should clear more cap space than teams that are not interested in this market segment.

Both teams that I follow, the Patriots and Steelers, are Even Keel teams that will try to moderately aggressively defend their tendered players. This means that they should seek to be two to five million dollars under the cap after the tenders have been extended in order to intimidate other teams from even thinking about an offer. The higher level is if they want to play at all in the first week of free agency. More players can be cut or restructured as cap space is needed to for the draft or for the second de facto round of free agency in early April, but the initial moves should be enough to be a credible defender of tendered players and bidder for medium price, high value free agents.

Friday, February 25, 2005

Pats fought Law, and the Pats Won

The New England Patriots just released cornerback Ty Law in a salary cap move that will save the Patriots roughly $9.7 million dollars against the cap. This move puts the Patriots significantly under the cap even with the Not Likely To Be Earned incentive charges being converted into LTBE incentives for the coming cap year.

I am a little surprised at the timing, as I thought that the Patriots would have wanted to wait a little while longer, at least until next Tuesday when Law was due a $1 million dollar roster bonus, in order to see if they could get any trade offers from teams that wanted exclusive negoatiating rights with Law. However the cutting of Law gives the Pats enough space to make offers to the RFAs without any other cuts, and could allow the Patriots some flexibility in the first week of free agency for some second tier guys. Now I think that the Patriots will still need to clear a couple million more dollars for draft picks, but there are a couple of easy restructures/renegoatiations that can accomplish this.

Overall, an extremely expected move by the Patriots, but I wish that they could have gotten something back.

Thursday, February 24, 2005

Property taxes, interest rates and starve the (local) beast

Most local governments and school districts heavily rely on property taxes to fund a significant portion of their annual budgets. These taxes are directly borne by the owners of land and buildings and the incidence of the taxation is primarily upon the users of land and buildings. (Incidence of taxation means who actually pays the tax, not who is signing the check. For example, part of my rent for my apartment is used to pay local property taxes despite my landlord writing the check.) Governing bodies are faced with the conflict of wanting growing revenues to provide more services and the resistance of property owners from paying higher taxes. It is a natural and good conflict. Now there are a couple of ways of increasing revenue. First is just raise the millage rate, secondly see property values increase, and thirdly, decrease any exemptions or deductions. The first and third are politically extremely dangerous unless there is a wide communal appreciation that the new services are vastly more preferred than saving money. So most governing bodies rely on seeing property values increase.

Now there are a couple of different ways that property values will increase. The first and most preferred is by seeing an actual improvement upon the land. For instance a plot of land that is empty will have a higher value to tax against if someone builds a steel mill on it. Jobs are created, products are created, income streams are created, and everyone is happy as the profit of the new improvement more than covers the increase in taxation. Governments will sometimes intervene and provide subsidies and tax abatements to reap the local benefits of new construction. The Tax Increment Financing incentive is a very common tool in Pennsylvania that seeks to accomplish this very objective. Some new tax revenue is dedicated to infrastructure improvements in order to increase the taxable base of a community. Sometimes it works well, sometimes it fails.

But the more common way for property values to increase is through a general rise in the market to bring up prices of previously improved properties. General market price increases can come through a couple of different angles. The most preferred is that a region is doing something so well that it is an extremely attractive region. It will be attracting new people into the region, retaining a lot of its current residents, and creating a lot of high paying regional exporting jobs to fuel an import replacement cycle of wealth creation. Silicon Valley and the Boston 128 Belt during the late 90s are two good examples of this type of property price pressures as everyone wants a piece of the action, thus bidding the prices of property upwards. However, not everywhere is Boston or Silicon Valley or Lower Manhatten etc. The next option is that some community has greatly improved its school district or restricted new construction or otherwise created a localized semi-monopoly/non-moveable asset that externalizes value that can be captured by property owners.

There are two more common drivers of property price increases. First is basic inflation, as in a boring economy with homogenous price and wage increases, the nominal cost of housing will increase as everyone has nominally more money. This is boring. However there is a second driver that can be politically interesting. Inthe past couple of years as interest rates decrease, the ability of a given level of cash expenditure per month to finance a larger mortage has increased. (The opposite will also be true) Since everyone at the same cash expenditure constraint level can finance the same (larger) mortage, the price of a house increases. Assuming instanteneously property assessments that are accurate, the same millage rate will lead to greatly increased revenue to the taxing body. However this pisses property owners off as they are writing the same size mortage check but are looking at writing larger property tax checks while living in the same house.

The second case is one of the things that I strongly suspect is happening in the Pittsburgh region as the current round of property tax assessments** show valuation increases of 20% for the county as a whole, with significant variations between communities. Signicant increases in tax bills without significant improvements in either the real property or public services are never popular or a good thing for a politician to not do something about. Dan Onorato, the County Executive, has decided to do a couple of things:

Cap assessment increases to 4% or less than the general inflation rate.
Expand the homestead deduction to shield $15,000 to $30,000 in value from school and local taxation.
Eliminate any windfall revenue flows to a taxing body

The second action of doing something against this outrage is purely a sop to the Blue Haired Brigade, so no big deal, politics as normal. However the first and third steps would create, if enacted, a very strong structural and political incentive to deprive local taxing bodies of any ability to maintain a constant level of real income at a given, constant millage rate. If property assessments are not allowed to increase at the inflation rate, much less at the market rate, the take of the real local domestic product will over time decrease. The same logic that applies to the debate over wage v. price indexing for Social Security applies here. Secondly, if a taxing body is not able to collect any windfall tax increases due to general market conditions, the only way to increases revenues for other needed services is through millage increases. This is politically dangerous and provides a very strong incentive to underspend, to undermaintain infrastructure and not to make investments into the future. I am curious as to why these restrictions are desired by Onorato, who is not a soulmate of Grover Norquist, but instead a typical SW PA Democrat.

** Yes, I know, the assessments have a good chance of being systemically high, but let's take this for argument that there is a significant interest rate driven general price increase due to the reallocation of cash flow within refinanced and recently financed mortages.

PA Senate 2006

Today has been educational for me. This morning I had not heard the name Chuck Pennacchio, and this evening, I have gotten off the phone with him and about a dozen other individuals extremely impressed. Chuck is a proffessor of international relations and history at the College of the Arts and has plenty of experience of running successful Democratic grassroots campaigns. Now he is running for the Democratic nomination to go against Santorum. Right now, I imagine that he is not even an asterik in any polling of the state. So here are my impressions.

  • Very articlute and passionate in the small group environment
  • Knowledgable, responsive and thoughtful on a wide range of issues
  • Very much a "Process Candidate" by this I mean that he believes that the process of active citizen involvement and grassroots involvement (see the first winning Harkin campaign as a success story) and wants to be very heavily invested in a grassroots/e-roots effort. "Our Message is Our Campaign"
  • This campaign will be an insurgency style campaign due to the superior resources and infrastructure possessed by Casey. (Chuck looking to raise $3 million for the primary cycle)
  • "Safe, Legal, Rare" but strong pro-choice position -- will try a neat piece of jujitsu by catapulting over the words pro-life as currently understood. I don't know if it will work, but this could be interesting.
  • Core of the campaign message will be Opportunity, Unity, Responsbility, Security
I threw in some personal thoughts in the list of impressions, but I liked the guy a lot. However my prime objective is to beat Santorum with any Democrat, and potentially the high name recognition of Casey (someone I would not vote for in the primary) may be the best option to increase the probability of a win.

I'm putting Chuck's button up in this post only for two reasons. 1) I need to make up my mind, and it is WAY too far ahead of the primary for me to do that. 2) I need to fix my sidebar again and it would look dumb. But I strongly recommend that people check him out some more. I am not sure if I want to engage in another Children's Crusade, but I know that I want more info about him.

Mayoral Update

It is official, Bill Peduto has entered the race. Now the Draft Bill blog is trying to act as a partial coordinator of volunteers and e-activism. However when the campaign announcements contains a reference to the the Miracle on Ice as one of the justifications of continuing to run, it does not look good at all.

Now for a candidate who wish he could legitimately reference the Miracle on Ice but will resort to Washington General comparisons, the Republicans will be running lawyer Joe Weinroth. I know nothing about this guy, but he has about as much chance as I do of being elected mayor in this cycle.

Sales Tax Lunacy

Dan Onorato in a story published by the Tribune Review has stated that he would like to phase out property taxes and replace school funding mechanisms with a reformed sales tax. I believe he is referring to the plan to drop the state rate from 6% to 5% but increasing revenue by dramatically increasing the tax base to include food, clothing and services. He does not specify this though, so I will assume that he is not proposing to broaden the tax base in the following analysis. In the same story, he also has a couple of really dumb ideas that are designed to choke any revenue streams that are coming from exisiting developped property. Hey, he is protecting the blue hair brigade and proposing to expand the Act 77 adjustment. Now back on topic of sales taxes instead of property taxes, Ol'Froth is asking a good question: "So is this doable, or is it just more grandstanding?"

Luckily we already have some good data for the county to see what type of substitute revenue streams and rates would be needed to enact a non-tax base widening sales tax dollar for dollar switch out of school property taxes. The Allegheny County Regional Asset District is allowed to impose a 1% sales tax on the same set of taxable items as the state sales tax. That is why I see a 7% sales tax on everything that I buy here, versus 6% in Washington County. The RAD Board has low overhead (<1%) so doing a quick and dirty eval, we see that they spend roughly $72.5 million (.doc file) to differnent government entitities and the same amount to regional cultural assets and stadiums. Therefore they take in roughly $145 million per year. This implies $14.5 billion dollars in taxable transactions within the county last year. Let's look at the requirements of a couple of big districts.

The current operational year budget for Pittsburgh Public Schools is a $489 million. The state government paid 36% of the cost of education in 2002-03 and the tight state budget has not significantly increased that level. Given that Pittsburgh is a high service and need school district, let's assume that 50% of the school funding is not local dollars. Therefore the district would need to replace roughly $245 million dollars, or roughly 1.6% of taxable revenue in the county. Let's look at another high need district, Highlands with roughly 3,000 high need students. They spent $18.8 million dollars for the 2001-02 school year, and again assuming 50% local dollars, this would be a tax increase of .12%. At the other end of the spectrum is Fox Chapel, which in 2001 had a budget of $39.8 million dollars, and since they are a rich district, the state proportion of funding is lower. Again, guesstimating that 30% of funding is nonlocal, the replacement tax increment rate would be .2% just for Fox Chapel.

I have not yet aggregated all of the school districts and their proportion of local funding through property taxes, but assuming that we are working on the same base as we currently have, the probable sales tax marginal incremental increase is between 3 or 4 points so purchases on currently taxable goods in Allegheny County would be taxed at 10% to 11%. Given that the transportation costs to go to lower tax surrounding counties are not that high, I would predict that a policy change based on cutting property taxes while increasing sales taxes would lead to an inverse donut as people would be more willing to move back into the county but as much non day to day retail development as possible would be located 10 feet over the county line in Cranberry and Ambridge. The winners of this proposal would be the owners of residential land in the county, especially land close to the county borders (let's encourage sprawl) and the owners of commercial/retail land just on the other side of the county lines, and homeowners facing lower property tax bills. Losers include current retailers who will lose county business, consumers who either have to pay higher taxes or pay the time tax of commuting to dodge taxes and any development project that is based on mixed uses and regional attractions (hi Southside Works, Waterfront etc.) I don't think that this is a good idea at all.

PS: I do not even want to go into the (vaguely) progressive nature of the current property tax system versus (explicitly)regressive nature of consumption taxes right now.

A No Good, Just Terrible Morning

Not really, but I really, really, really actively dislike driving in snow, especially when the vehicle that I am driving is not my own AND handles like a drunk pig on speed. In my 7 mile commute, I almost hit people twice due to my inability to stop from 10 mph in under 250 feet despite being in low gear and actively pumping my breaks AND I was almost hit twice as I was stopped at stop lights and stop signs for the same reason. I also had the express pleasure of seeing a "high speed" police chase go by me near my house at such velocity, good high school 800m runners could catch the bad guy's car in dry weather.

Also this morning, my computer is making funny noises and shutting itself down due to serious system errors whenever my screensaver goes on. I popped it into safe mode, ran AdAware, Spybot and Avast Anti-Virus, and I am still not able to fix what is wrong. Any ideas? There is a computer repair shop right down the block that I may be forced to use. I am thinking of uninstalling my screensaver (it is the SETI@Home one), and then seeing what else may be happening. Any suggestions.

And now I will have to drive 20 miles to pick up a ton (literally 9/10ths of a ton) of stuff in shitty weather.

I need coffee.

Wednesday, February 23, 2005

France out of the UNSC: mais non

Praktike, at Liberals Against Terrorism has a very interesting post about potentially needed reform at the United Nations, and he discusses in a good deal of depth and detail some of the internal problems and some of the reasons why Bush Sr., Clinton and now W. have not spent the political capital needed to push the reforms that Praktike believes to be neccessary. I agree with most of this piece; however there is are a couple of statements that I disagree with on the make-up of the security council:

But at this point France is punching above its weight (residual self image issues) and India (though there is a Pakistan issue here) and maybe Brazil are punching below theirs. Germany and Japan are major economic powers, but they aren't militarily strong and thus play a much greater role in the G-8 and elsewhere. The General Assembly is going to remain what it is, but the Security Council needs to be changed somehow,

I have to disagree here with France in two different contexts. First if we evaluate France by itself, then if we evaluate France as the voter for a larger proxy bloc of a surpanational entity (the EU) that is not quite a nation state (yet). By itself, the French economy is the 7th largest in the world. (By Purchasing Power Parity, I believe) and militarily is one of only three nations that can credibly run brigade and division sized opposed operations at the other end of the globe. Great Britian and the United States are the two other nations with a global expeditionary capability. So if the UN Security Council is supposed to be composed of economic and military great powers, France has a legit claim to the rank of non-US great powers. It is not as rich as Germany, or Japan, but it has capabilities neither one of these countries has decided to purchase and maintain. What France lacks is the population of China or Russia or the United States or India or Brazil.

Now if you look at France as the voting member of the Franco-German alliance in the EU, a Security Council seat for the non-Atlanticist only member states of the EU sure as hell makes sense population wise, military capability wise and wealth wise. Yes, I will immediately concede that there are legitimate agruments against giving France a UN Security Council veto while India (home to ~15X more people) does not have a veto, but these arguments are no stronger against the French veto than the same basic set of arguments are against the British and Russian vetos.

I would fully support offering permanent seats to India, Brazil and potentially Indonesia if the veto requirement for UNSC actions was watered down to two nations needing to vote against a proposal, but that is not going to happen.

Restricted Free Agent Strategy

The two football teams that I pay any serious attention to; the New England Patriots and the Pittsburgh Steelers, are in similiar positions as the free agency season rapidly approaches; solid core of players, slightly over the cap and a couple of big decisions that need to be made soon. The Steelers have made the decision to not franchise Plaxico Burress and will almost certainly see him sign a big deal elsewhere. The Patriots have franchised kicker Adam Vinitieri which commits them to slotting $2.4 million dollars against the cap for the upcoming year. The next round of decisions is the tender decisions for restricted free agents and restructuring/releasing of several vets for each team to get under the cap. I want to talk about the strategy of restricted free agency.

Before I get started, let's just go over the mechanics. Players with two or fewer accrued seasons in the NFL are exclusive rights free agents; basically they have to be tendered a minimum salary for their experience and the team owns their rights for the next year. If they are not tendered this minimum salary, then they are free to sign with any other team at any price that they can command. On the Patriots, Gus Scott and I believe Randall Gay are the most prominent ERFA. Restricted free agents are players whose contracts have expired after they have accrued three credited seasons but less than four seasons. Teams can offer them one of three tender levels that carry the right of first refusal and differing levels of compensation. I'll get back to this in a minute. Finally, unrestricted free agents are players who either are cut outright(regardless of their accrued time in the league) or whose contracts have expired after they have accumulated four or more accrued seasons. The only restrictions are for "franchise" and "transition" where the team can designate one veteran free agent whose contract will expire on March 1, as such a player and retain the right of first refusal or compensation in the form of draft picks depending on the level of tender.

I just want to talk about restricted free agents, although the same theoretical framework applies to the tender decisions for transition/franchise unrestricted free agents. Football Outsiders astutely notes that good teams will routinely underpay for performance in order to gain higher levels of team talent than teams that either pay full market value for their talent, or overpay for inferior talent. Restricted free agents are unable to fully enter the market, but they are approaching the end of the time period in which desirable players are comparatively underpaid. The tender is a way for a team to ideally underpay a player for one more year of above expectations performance on the field. Now there are three levels of tendering with different levels of compensation and restrictions:
  • Low --- ~$680,000 and the right of first refusal. If a player at this level is signed by another team, the signing team surrounds a pick in the round that the player was orginally drafted in. The surrounded pick must be at least as good as the pick that the team would have been slotted to have owned in the 2005 entry level draft.
  • Medium --- ~$1.4 million and the right of first refusal. If a player at this level is signed by another team, the signing team surrounds a first round pick that isat least as good as the picks that the signing team would have been slotted to have in the 2005 entry level draft.
  • High --- ~$1.9 million and the right of first refusal. If a player at this level is signed by another team, the signing team surrounds a first and third round pick that are at least as good as the picks that they would have been slotted to have in the 2005 entry level draft.

At any time, a restricted free agent and the team that they played for in the previous season are able to agree to a long term contract at any time. So now the question is what level of tendering is appropriate for a given player.

I will make a couple of assumptions; first the tendering team believes it has a reasonable accurate evaluation of a player's performance to date. Secondly, the tendering team at least believes it has a good way of accurately projecting out future performance of its own players. Thirdly, the team wants to get the most value for its constrained cap space as it can. Fourth, other teams will have different evaluation metrics than the tendering team.

Therefore we can assume that a team will tender a player at a level where it believes it will not overpay the player for future performance. It will tender at a level where if anyone signs a player to an offer sheet, it is either willing the match the offer sheet, or it will be better off with the compensating draft pick(s) and the salary cap space to spend on other players. Thus they will not tender a Just Another Guy (JAG) at the highest level as a JAG can be signed for 450K in cap space nor will the tendering team offer a Low tender to a 7th round pick who looks to be a perpetual Pro-Bowler as someone will sign them and gladly pay a 7th rounder to do so.

With these assumptions, we get to play some strategic chicken. For instance the Patriots have three RFA on the offensive line, T Gorin, T Ashworth and G Neal. Ashworth and Neal were undrafted players, while Gorin was a 7th round pick. The Low tender is not much a deterrant from other teams signing any of these players as the draft pick needed to compensate the Patriots is not that painful. However if the Patriots bump the tender offer to Middle, it is highly likely that the Patriots will overpay for their talent as no one would want to sign any of these players at the cost of 1.4 million dollars AND a first round pick. So what is the correct strategy in a situation where the player is competent but nothing special AND a low/no round pick? I think that the proper strategy is to offer the low tender, have a particular cut-off valuation for the player at which point the Patriots are willing to match any offer below that valuation, and otherwise let walk. If some team believes that Tom Ashworth is a 2 million dollar a year Right Tackle, then the Patriots will let him walk as it is extremely likely that they see him as a less than $1 million/year tackle and thus can use the freedup cap space to sign another bargain. If no one makes an offer, then the Patriots sign Ashworth for another year at a price below his marginal contribution.

Now what to do about players who the tendering team values more than the low tender and most likely will also be valued above the low tender by other teams. The first response is to go to the high tender and rely on the high salary and the two high draft picks as a deterrent to other teams. However this may overpay the player for one more year of service, so the middle pick may be the best option as it is a significant sum of money and a first round pick which will force teams to make a tough decision. Is Player A worth both a large contract and a high pick. The tendering team can gain a significant one year discount as competing teams may be reluctant to part with both a large enough contract to discourage a matching offer and a first round pick. Therefore the tendering team can gain a significant discount on the services of the highly valued player. This is the strategy that I think that the Patriots will adapt with David Givens; if someone wants him badly enough, they will pay for him, but the Patriots will have the ability to go up to their maximum willingness to pay for a good deal.

Finally, what is to be done when a team values a player above the low tender but below the medium tender? I believe Jarvis Green may fit in this profile as the Patriots signed RFA DE/DT Rodney Bailey from the Steelers last year for $1.2 million dollars and a 6th round pick, so that about sets the value for Green from the Patriots point of view. Does another year of Green backing up two positions at $1.4 million in salary cap space make sense? I don't think so, so the optimal strategy is to get as much value from holding the rights to Green as possible and that is to tender low in order to bait another team to make an offer. This offer will either be low enough for the Patriots to happily match OR the Patriots will decide that they are better off with a 4th rounder and salary cap space.

Every team in the league is making decisions like these, and this is where all the fun starts for nerds like me. On a side note, I always have to hold forth hope on the ability of policy analysis to penetrate the public mind as plenty of people are able to analyze football operations in terms of opportunity costs, resource constraints, strategic interactions and bluffs/credibility thereof. If people can do this for sports, or something that the care about, they can potentially expand their thought process to policy issues.

Tech Council Events

Just got my weekly Pittsburgh Tech Council E-mail and saw two interesting events:

New Economy Night: Mix At Six
Network with young professionals while connecting to the Pittsburgh Public Theater and the Cultural District. New Economy Nights, held six times per year on Thursday nights prior to Public Theater opening night performances, offer a happy hour and discounted tickets of $20.50 for the latest show (or $12.50 for patrons age 26 and under as well as full-time students). Stay after the Mix on March 10 for The Tempest. Sponsored by TEQ magazine, Ariba and Pittsburgh Brewing.
Date: Thursday, March 10
Time: 6:00 p.m. - 8:00 p.m.
Venue: O’Reilly Theater, Pittsburgh
Cost: For more information, contact Council Events.
RSVP: Online, Council Events or 412.918.4229

I am not the biggest fan of the Public (ooohhh lets play it safe all the time), but cheap tickets for a well done piece of Shakespeare are almost always worth it

Business-2-Government: Tech-Focused Economic Development Resources
Department of Community and Economic Development Secretary Dennis Yablonsky discusses services available to Pennsylvania's technology-focused entrepreneurs. CEOs from Pittsburgh's leading economic development organizations, including Rich Lunak of Innovation Works, David Ruppersberger of The Technology Collaborative and Doros Platika of the Pittsburgh Life Sciences Greenhouse, also review growth strategies for tech-based economic development. Sponsored by Buchanan Ingersoll PC.
Date: Thursday, February 24
Time: 2:00 p.m. - 5:00 p.m.
Venue: Rivers Club, One Oxford Centre, Downtown Pittsburgh
Cost: $45 for members, $55 for non-members
RSVP: Online, Council Events or 412.918.4229

This could be an interesting talk. It also holds the potential of being a complete yak fest with people who have no good ideas but think that they can perfect cold fusion next week. I can not make it as it is tomorrow and I can not take the time off of work, but it could be interesting none the less.

Naive Question

Garance Franke-Ruta at TAPPED (who really should get trackbacks) has an interview with an organizer of Red State who makes an interesting point; the Democrats outsourced their GOTV while the GOP internalized their GOTV operatations and databases. Under current law, the Democratic 527s are not allowed to share their databases or otherwise coordinate with any political party. This puts the GOP GOTV effort ahead of the game for 2006 and 2008 as they do not need to reconstruct their entire data system.

Now for the really naive question; are the Democratic leaning 527s allowed to just publish their entire database into the public domain with the appropriate slice and dice tools for anyone to use. It would not be a coordinated maneuver, as the GOP could use it too (however I doubt, due to replication, that there would be much value there), but just as coincidently the DNC and other Democratic organizations could also use the data.

Tuesday, February 22, 2005

Australian Troops

Australia has committed itself to an eighteen month security deployment to southern Iraq to replace the Dutch troops who were guarding the Japanese combat engineers in the British sector. This is a little good news, but once we look into the details, it is still a net negative.

The Dutch had deployed an infantry battalion with supporting elements to southern Iraq. This was at least three combat companies of infantry along with some motorized support plus logistics and signals units. The Australians are sending an armoured car company, a calvary squadron and a training platoon or roughly 1,000 fewer soldiers than the Dutch had deployed. When this is a force structure victory for the US, it might just indicate that we have a problem.


Oil Again

In a relatively mild winter, we are seeing $50.00/bbl oil on the spot market as OPEC is looking to reduce their output a little bit, and global demand is still growing strongly. I am curious as to what the prices will be this summer as we will be seeing the secular increase in Chinese and Indian demand combined with the seasonal increase in demand for motor fuels combined with the transitional downtime of some US refineries for clean-air gas blends.


Good Article

Maeve Reston of the Pittsburgh Post Gazette has an excellent article up on the web about the pros and cons of price versus wage indexing of long term Social Security benefits. The article does a good job of explaining what the differences are AND what the expected changes in outcomes would be. My only complaint is the assumption that the intermediate cost projections are set in stone, as there is a good 10 year trend that is showing that the low cost projections have been closer to reality, and every other budgetary analysis has projections that are way more optimistic than the intermediate case, including President Bush's recently submitted budget proposal. I want to see some more analysis of what the world may look like in a low cost scenario (ie no problem.)

Monday, February 21, 2005

Good Talking Point

Now that we will be seeing ""Social Security = Gay Marriage" attack, we need to keep hammering back, and A Different Chris in comments at Angry Bear has a good point that I am stealing directly.

Every repost should not start off with "SS is safe because (blah, blah)" or "the General Fund is (blah, blah) but should be something of the order of "Show me even one thing President Bush has gotten right when he talks about money. Several failed businesses, deficits in Texas and as President. The truth is that he simply does not know what he is talking about."

Push the talk back to the last four years, how he has gotten everything wrong. Do not even bother to defend SS, make the argument that Bush has clearly proved that he isn't the guy you want deciding fiscal policy 10, 20, or more years down the road.

Mayoral Race Updates

It has been a while since I have written about the mayoral race, and I am still going through my decision matrix. The first step was the "not Murphy" criteria, and the second step was "viable chance of winning". I have knocked out one contestant from this stage (sorry Mark.) The third level is that they do not believe in Deux ex Machinas that can save the city in a single heroic stroke. Bill Peduto is on shaky ground here --- creativity as an ED or fiscal management strategy gets pretty close to divine intervention --- with Michael Lamb and Bob O'Connor seeming to be better managers and operators than Peduto.

Michael Madison at PittsBlog has a good run down of the websites of the candidates. I just saw a recent argument that O'Connor will run to victory on the Blue Haired Express while Ol'Froth, the organizer of Drinking Liberally, has a Peduto staff member lined up for tomorrow night at Finnigan's Wake on the Northside.

Army Recruiting tough, retention OK

The Washington Post is reporting that the Army is having significant problems meeting their recruiting goals. As of January they were on pace (over pace by 100 recruits) but this was through the deployment of 600 new recruiters and the mark to marketing accounting treatment of the Delayed Entry Program. Last year the DEP made up slightly less than half of all recruits, this year under a fifth of recruits are signing up in November to go to boot camp in June. They anticipate having fewer DEP personal next fiscal year, which makes the recruiting mission much harder.

The only good force structure news is that retention is slightly above benchmark, which is giving the Army some breathing space WHILE also destroying the ability of the Reserve and Guard to recruit from one of their traditional pools of departing active duty members who want to stay involved at a lower pace.

Friday, February 18, 2005

Sense of Unsustainability

Via Needlenose I saw this Reuters article about Greenspan arguing for privatization, not on grounds of increased solvency or improved retirement outcomes, but on ideological grounds:

U.S. Federal Reserve Chairman Alan Greenspan embraced President Bush's vision of an "ownership society" on Thursday, saying private Social Security accounts could foster feelings of wealth among poor Americans.

. . . While he did not specifically endorse Bush's plan and admitted private accounts, in and of themselves, would not improve Social Security's shaky finances, he said such accounts could importantly create "a sense of ownership."

"These accounts, properly constructed and managed, will create ... a sense of increased wealth on the part of middle and lower-income classes of this society, who have had to struggle with very little capital," Greenspan told the House of Representatives Financial Services Committee. (all emphasis is mine)

So Alan Greenspan is trying to argue that private accounts will be treated as collateral for increased borrowing by a segment of the American population that is already up to their eyeballs in debt, as the only way that the typical hourly worker can feed their consumption growth is through increased debt or the drawing down of assets as real wages for this segment of the population are not increasing.* However given the curlicues of the probable Bush plan, the private accounts do not offer any new ability to pay off or maintain debt.

Therefore Alan Greenspan is advocating yet another spectre to continue the asset based recovery that we have been experiencing over the past four years as the housing market is starting to cool off, the stock market is moving consistently sideways, and we are seeing significant price pressure from commodities. Alan Greenspan is continuing his assault on the typical American for in 1983 he had us overpay our Social Security taxes to theoretically make it easier for my parents to retire, in 1998 he opposed the Clinton plan to seek higher rates of return by putting OASDI TF revenue into the market managed by the government in order to moderate risk because that would be socialism, encouraged the destruction of the surplus that was built up partially by his recommendation, and now is looking to screw the typical Americans by destroying the sole remaining guarantee of a minimally acceptable retirement lifestyle. So thanks for nothing Mr. Greenspan. Stick to managing the Fed, instead of being a hack in pursuit of a Randian agenda.

*Data source: BLS CES 0500000049 AVERAGE HOURLY EARNINGS, 1982 DOLLARS

Useless Spam

I was cleaning out one of my e-mail accounts this morning, which I keep open for no real good reason any more as 98% of the messages in there are spam, but I keep it open none the less. I just have a dumb question, why is every spam e-mail entitled in an obvious way that it is junk mail? I don't want a bigger wang. I don't want to win $500 by doing nothing. I don't want to see three just turned 18 year old Russian chicks getting it on with each other and a horse. I don't want to know about the next great money making opportunity at absolutely no risk. I don't care about all of this junk.

However I know that the marginal cost of sending a bad piece of spam is the same as sending a good, more likely to be read piece of spam, while the fixed costs of designing bad spam is cheaper than the fixed costs of creating a good piece of spam. With that said, is it still possible with new search technologies and algorithyms to make my life as a typical e-mail user even more of a pain in the ass by sending me e-mails with headers such as "Interest Research findings on $$/Yuan transactions" OR "Patriots looking for a DT in 3rd round" in which they then attempt to sell me a bigger wang or three Russian chicks going at it with each other.

Thursday, February 17, 2005

Wish I could go

Stealing directly from Eric Umansky who is grabbing it from the WaPo is an event that I wish I could go to next week:

Message-control Alert: George Tenet, who retired as CIA director amid controversy over intelligence failures, and outspoken former treasury secretary Paul O'Neill, who was shown the door by the Bush White House, will share a stage next week in Pittsburgh at a fundraiser for Gilda's Club, the cancer patient support charity named for late comedienne Gilda Radner. A PR release yesterday promised "a rare insider's view of presidential decision-making." And perhaps it will even be a candid discussion: The moderator is author Ron Suskind.

Anyone want to hit the tip jar to so I can be a high fallutting Icky Sewickley for the night.

Just joking


I've been swamped at work this week, and it is not like I can complain (too much) as the work that I am doing is a combination of useful, well directed and timely, so it is not make work or stupid, never to be implemented action items. It is just what it is right now. It is exhausting me, and shutting off the creative juices, so I apologize for not posting that much (decent econ news, low initial claims again, but leading indicators dropping; strange story on reserve accumulation and that is about it). Oh well, at least I have a couple of meetings tomorrow that will feed me well.

Wednesday, February 16, 2005

Patriots Trades

The Buffalo Bills have announced that they will be releasing Drew Bledsoe next week, thus ending a relatively short stay there despite the high hopes that the Bills had in the spring of 2002. The Bills had acquired Bledsoe from the Patriots for a 1st round pick for the 2003 draft. The Patriots used that pick to select DT/DE Ty Warren, who is having a damm good start of a career.

I am just looking at the major trades that the Patriots have made in the past couple of years, and with two exceptions, they have been very one sided. The most one-sided trade is the Bledsoe trade, as the Bills will have invested three first round picks to find their quarterback of today (2003 for Bledsoe, 2004 for Losman, 2005 to trade up for Losman), and the Patriots have gotten a better than competent 3-4 DE, 4-3 DT at a relatively cheap price. Next we have the Terry Glenn trade to Green Bay, where the Patriots received a 4th in 2002 and a 4th in 2003 which later became Rohan Davey and Asante Samuals. Glenn attituded his way out of Green Bay in a year and was traded to Dallas for a 6th rounder. Next we have the Tebucky Jones franchise and trade to New Orleans for 2003 3rd (which later became a 2004 2cd which was traded for Corey Dillon), 2003 7th and a 2004 4th rounder. The Saints are looking for a replacement for Tebucky Jones as their strong safety. Finally, the last trade that seems very one sided for the Patriots was a draft day trade that sent #19 in 2003 to the Ravens for #40 (later trade up to #36) and a 2004 1st rounder that turned into the Patriots getting Eugene Wilson (starting FS) and Vince Wilfork (starting NT) while the Ravens picked Kyle Boller, who is at best a mediocre quarterback.

The trades that seem to be win-wins are the 2003 trade to the Bears for Ted Washington for a 4th rounder and the Corey Dillon for a 2004 2cd rounder. The Bengals were able to draft a competent, young, cheap safety that they think that they can build their secondary around while also giving the Patriots a great running back who was a lockerroom cancer. Definately a win-win given the results this year.

I have a couple of questions. First, why are the Patriots consistently coming out ahead in these deals? If the Patriots had nothing special in their personnel evaluation department, I would expect to see far more win-win or lose-win with the Patriots losing occassionally, so why are the Patriots better talent evaluators? Next question, if the Patriots truly are better evaluators, why would any other team want to trade with the Patriots as the odds are that they will be screwed?

Blood for Cookies

To me that is a good trade, and for society that is a damm good thing that I am easily bought out. The Central Bloood Bank of Southwestern Pennsylvania is desperately short of platelets right now and they are urgently looking for donors. For first time donors it takes about 2.5 hours (just long enough for a good movie that they provide) and repeat donors can get through the process in 2 hours. They only take the watery part of your blood, and pump all the red and white blood cells into you, so you feel fine after you have FREE cookies and juice, AND you get to help some people out. Come on, you have not felt this good for getting free cookies since kindergarten.

Tuesday, February 15, 2005


A reasonably reliable little birdie chirped to me that there is a good probability that the Pittsburgh Police Department will be talking with the usual suspects concerning racial profiling and racial based harrassment in the near future and if satisfactory changes and pronouncement are not made, a suit may be filed.

P True = 60%

Iraq forces capability

The cornerstone of what appears to be the Bush exit strategy is to stand up enough Iraqi units that are well trained, well supplied (at least in a regional context) and MOTIVATED to fight for a Baghdad based central government. Given that the central government is now in Shi'ite hands, it is possible that the Badr Brigades (the militia of one of the largest coalition partners) will be reflagged and will act as motivated and well supplied troops that are loyal to Baghdad. However that is not what has already happened.

Defense Tech dug through the Pentagon supplemental request so that I did not have to and found the following passage:

The Iraqi Interim and Transitional Governments, with Coalition assistance, have fielded over 90 battalions in order to provide security.... All but one of these 90 battalions, however, are lightly equipped and armed, and have very limited mobility and sustainment capabilities. (emphasis mine)

So basically the Pentagon believes that 1.1% of the current Iraqi force is capable of offensive operations. This could very easily partially explain the horrendous input-output modelling of the Iraqi National Guard AND the Iraqi police as the US DOD is admitting that it is extremely likely that they are sending most Iraqi units out into the field undergunned, underarmored, under connected and underarmed. That would do wonders for morale... beyond the fact that a good chunk of the population considers such a volunteer as a collaborator and a larger proportion of the population is indifferent.


A Natural Experiment

Now that Wednesday looks like the absolute drop-dead termination of the NHL season, this is a great research opportunity for some enterprising economics or public policy grad student with a little bit of spare time.

What is the real value of a hockey team to both the city in which it actually plays and the local MSA now that we have the ability to more easily tease out the relationship and regional cashflows as we can see the absence of direct hockey related expenditures. I think my research design on this would rely on state level income tax revenue where possible, and probably segregate the league into a couple of different categories; MSAs with hockey only, MSAs with other big-4 pro teams and then regress against MSA population and team season ticket base. We won't have the MSA domestic product data for another couple of quarters, but this would be a real cool little paper for someone to put together.


Does the Bush administration do any background checks past making sure that an individual is politically reliable? I ask this as in the past three months there have been a couple of interesting cases. First Bernie Kerik for Homeland Security most likely had massive corruption and potential mob ties while in New York City, now a probable prostitute with absolutely no media experience gaining daily and repeated entry to the White House Press room, and finally nominating as a judge an individual who has been practicing law without a license. This is simple, minor league stuff that broke within a couple of days of anyone paying attention to these individuals and by using mainly public records, no need for a Deep Throat or an investigation of thousands. I know that when my friends have gotten their clearances that the FBI is thorough in the vetting of a bunch of computer nerds, so what is going on here when either senior officials or people in constant proximity to the President are not getting caught in the basic screening process.

PS: I know that the only requirements for judgeship are a) Alive b) The President bellieves the Senate will advise and consent, no requirement for a legal background.

Monday, February 14, 2005

Iran Deterabble?

Tiger Hawk is far more hawkish than I am, and also I think far less willing to look at history than is justified when he asks the question "Is Iran deterable now, and will it be deterable if/when it has nuclear weapons?" He is, I believe, making an argument that at least Rafsanjani is not self-preservationist enough to believe that conventional nuclear deterrance would be an effective stop to any danger from an offensive Iranian use of nuclear weapons. Now this is the question, and it is one that I think that I will instinctively disagree with TigerHawk on as the United States should have been first worried about a crazed dictator who has let millions of his own citizens starve in order to maintain his hold on power while maintaining his military. Yet, the US policy is now a de-facto policy of containment and deterrance. If we can live with North Korea having some type of nuclear capability because we trust Kim Il Jong and his senior military leadership to not be suicidal, I believe that we can trust the senior Iranian leadership to value their lives.

Looking over the recent history, what major strategic miscalculations has the Iranian leadership made? Support Hizbollah? Not really, there are few costs to doing so? Support the insurgency in Iraq? Good idea from their point of view as it ties down the US Army and allows for increased Iranian influence in a strategic area? Not join the WTO: good idea as isolation lets them more easily maintain their hold on power etc. Unlike Iraq which started two wars of choice in the past generation, there is far less of a history of major aggressive action by Iran against the West's oil supply. Even taking into account the decision by Saddam Hussein to start two wars of choice, he was deterable when presented with clear information and a credible threat of strong punishment (see no WMD usage in Desert Storm etc.). If Hussein was deterable when he had clear information, then I have to conclude that it is most likely that Iran, even a nuclear armed Iran, is deterable. Otherwise it would have to be war in the next eighteen months.

I think that we could live with a nuclear armed and deterable Iran. Unhappily, but this is a dealable situation that imposes constraints on the US freedom of action, but that is life.

PS: There is also a link to a cool site where you can see how popular your name was when you were born

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Numerical Courage

There are a lot of public sector and non-profit organizations in Pittsburgh that are in trouble to one degree or another, starting with the now bankrupt Pittsburgh Center for the Arts, and going to almost everyone else where money is at least a little bit tight. That is the reality that we deal with, and it is not an unusual state. However there are differences between organizations that face the same initial conditions of a tough couple years in funding, reduced government revenue, and a shrinking population that has led to several different outcomes. One of the prime determinants of outcomes is the way that information is treated. Organizations with minor problems that can be dealt with without destroying the ability of the organization to accomplish its core mission tend to be less scared of numbers and less scared of looking at bad news when it happenings. Organizations that are in fiscal intensive care (hey there Mayor Murphy) don't want to look at the numbers that indicate a future problem, and they also hide their data.

Now why does the Pittsburgh public sector's performance have anything to do with Iraq? Simple, we are seeing signs that the US government's preferred information dissemination strategy is ignorance. The Indepedent is reporting that the Pentagon is refusing to release numbers on how many fully trained security forces are available for duty any more. Instead they are reporting how many people are receiving security related paychecks or are on duty. Given the low levels of training and the severe motivational problems most of the paid Iraqis possess, this is a problem as the numbers that the Bush administration is using (as usual) are severely misleading at best.

I know from my experience working in Pittsburgh that when the Executive Director routinely misleads the board without actually lying, and bad news is coming down like rain to start looking for an exit strategy as the organization is on the verge of a major reorganization or a collapse. Failure to deal with reality and a willingness to treat information as an enemy are not the signs of a healthy and effective management culture.



Well the final electoral results from Iraq are coming in, and with the redistribution of the non-qualifying partie's remainders, it looks like the Sistani list has a clear majority by itself, and can easily ally with the Kurds to get the 2/3rds needed for significant changes and ratification procedures. Now looking at this list provided by Juan Cole (permalink down, something screwy on my end)

United Iraqi Alliance (Shiite): 133 seats
Kurdish Alliance: 71
Iraqiya (Allawi = Secular Shiites) 38
Iraqiyyun (al-Yawir= Sunni Arabs) 5
Turkmen Front of Iraq 3
Cadres and the Chosen (Sadrist Shiites) 3

What can we say? The easiest thing to say is that the the Sunni's sat this one out. Turnout in Al-Anbar province, home of Fallujah, Ramadi and Quam, was under 4,000 voters, and total Sunni led party votes were roughly 3.5-4.0% of the vote. The Sunnis are cleaved from the political process and that was one of the goals of the insurgents; ensure that they had a base of aggreived and alienated people who did not believe that the political process would be a fruitful or effective way to redress their grievances.

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Sunday, February 13, 2005

Iran Rumors

Well the Washington Post is reporting from several unnamed sources that the US is running recon flights with at least drones into Iran right now, vioating their air space, which is definately a hostile act as the Iranians are fully in their rights to start shooting at the drones if they wish to do so OR are capable of doing so. I think that the S-300 SAMS that they purchased in the mid-90s give them the capability if they can set it up right. The overflights are part of setting up the intel battlefield for the Persian Incursion '05 tour.

Now if these two rumors are to be believed, the Iranians are considering lateral escalation, by increasing their efforts to destabilize Iraq and tie down US resources there. As it is, it seems to be that there are more fatal actions in southern, Shi'ite Iraq right now against the security forces nominally loyal to the Allawi government, then it has been in the past.


G-mail invites

On my peronal e-mail account, I have 50 G-mail invites that I can give out. Anyone want one? So far I am very satisfied with the service as it is a damm good way to archive my work, and archive my thoughts on an indepedent system that I have absolutely no way of screwing up. The search function is convienent and the storage space is great.

Just leave a note in comments or e-mail me at

Friday, February 11, 2005

Dispersing Talent

The current NFL is designed to make it extraordinarily difficult for a team to do what the Patriots have done. There are too many forces that pull successful teams and management players apart. Management tends to have more stability than players if a team is moderately successful but great success will let the assistants, coordinators and other critical but not top level personel get promotions from other organizations. That is what is happening with Charlie Weiss going to Notre Dame, Romeo Crennel going to Cleveland, and Eric Mangini (the secondary coach) shopping himself around. It is to be expected.

Now what is not to be expected, is for a football organization to lose some of its management to the Harvard School of Business but the Patriots' COO will be a new lecturer there. I can see the life experience and case study potential of running an extraordinarily successful sports franchise with its frequent negoatiations, public policy implications and marketing components as a valuable and tangible experience for a bunch of MBAs, it is just an unusual event.

And I am also surprised that this has not happened with at least a couple of Steeler's management people teaching or at least adjuncting at GSIA or Katz in Pittsburgh. To me, this would have been a Pittsburgh style move.

Thursday, February 10, 2005

Nukes, Credible Deterrance, and Riskflotte

Let's talk nukes:

Mr. M is extremely worried about a nuclear North Korea, while I am not as worried as I believe in deterrance and am somewhat sanguine towards proliferation. I would prefer that it not happen, as it will increase the potential threat level, but it is a real probability that it will occur by the time that I am thirty that at least one more nation, in addition to North Korea will have declared that it has nuclear weapons. The biggest change that North Korea has in going nuclear is that the scientists and engineers working under contract from the MDA will have permanent full employment as NMD will be a sacred cow. But North Korea's public announcement of a nuclear weapons arsenal probably will have little real geo-strategic impact.

SimianBrain has a good point about the value of deterrance in the uni-polar, hyper-power world that appears to the desired end state of the Bush administration national security doctrine; "play nice or go nuclear when it comes to the Americans" are the options that are feasible for most nation states. Going nuclear with only a single warhead of questionable effectiveness is not neccessarily sufficient to deter the United States or other regional nuclear powers from either engaging in a pre-emptive strike OR conventional warfare. However rebuilding the Soviet arsenal complete with 80+ SSBNs, 2000+ ICBMs, and hundreds of bombers in addition to 10,000+ tactical and theatre nuclear warheads is a little bit of overkill.

So what is the minimal neccessary credible nuclear deterrant against the United States for Iran, and when could they build this deterrant. An effective and credible deterrant must be believable in both players' eyes that it will work and inflict sufficient pain so as to change the cost-benefit calculation of the other player. An effective detterent must be secure enough or mobile enough or on a short enough alert status to avoid being completely eliminated or at least effectively eliminated from a first strike. An effective detterent must also be under effectice command and control so that it can actually be used if need be. An effective deterrant therefore needs to be able to have enough warheads on enough delivery vehicles that can penetrate any enemy defenses to cause sufficient pain of some sort to change the decision calculation at the time and place of the national command authority's choosing.

That is a pretty tough requirement. Right now, I can easily say that the UK, France, China, and Russia easily meet those requirements. Isreal most likely does as it can destroy any Arab capital AND the world's cheap oil supplies. India may or may not as they do not have delivery systems that can reach US allies or sufficient weapons, Pakistan probably does not for the same reason as India, and North Korea can only credibly threaten Seoul (with conventional weapons) and now maybe Tokyo, Guam and Honolulu. So the non-Cold War major powers (ex. Isreal) can only fight and deter the US in a regional situation at this present time. Iran will most likley go to a mobile missile route as that provides some security against a potential US pre-emptive/preventive strike by not allowing US intel to get firm fixes on targets. However this will require a lot of delivery vehichles and warheads as mobile missiles are less reliable than silo-missiles AND more vulnerable to a near miss. They also tend to be shorter ranged. So Iran would need to develop a significantly large force of missiles w/warheads that can at least threaten the Saudi and Kuwaiti oil infrastructure and most likely Tel Aviv in order to credibly deter the US from thinking of invading. Anything less would still invite vulnerability as the Iranian deterrant would be a local, counter-force, detonate nukes on your own soil or choose a generation long guerilla war.

So building missiles and sufficient warheads that are reliable enough to work, takes some serious time. The Iranians need to buy themselves some time to first build reliable nuclear weapons, and then build enough and deploy enough of them to have a credible second strike deterrant. This time frame is probably several years. They are operating under the same set of strategic limitations that hit the Kreigsmarine during their build-up during the dreadnaught arms race; the British had such superiority during the initial phases that they could go in and destroy the first units and the infrastructure despite any probable losses, which neccessitated buying time and secrecy. Secrecy on a strategic sense is out of the window, and therefore time is the only option that the Iranians will want.


A little good news

New claims for unemployment insurance dropped to 303,000 last week (unrevised) which is the lowest it has been since the end of the Clinton presidency. Given this data point and the previous data point of 313,000 for the previous week, it is looking like the bumps up into the 350,000-360,000 range at the start of the year may have just been aberations. 300,000 claims per week is indicative of job growth that is definately above population growth. IF we see a couple months where this is the equilibrium number, then we should see some great job growth numbers which may put some upward pressure on wages, which may let the US get to an income sustained expansion, as the current account and debt fueled expansion has to slow down eventually.

Now the bad news, the trade deficit is at a record size with a low chance of decreasing any time soon AND oil looks like it will be going up while at the same time interest rates may be increasing faster than the current rate of 25 basis points every six weeks.

So we may have some good news on the employment front if the current initial claims trend continues, but there are significant headwinds as we get to start paying the price of irresponsibility.


North Korean Nukes

North Korea has publicly announced that it has a nuclear weapons stockpile that was primarily built from the weaponized plutonium that had been under IAEA seal until relatively recently. Now what?

This really does not change a lot of policies as, much like the Isreali stockpile, people have known that the North Koreans most likely have had one for at least a year plus, and possibily have had 1 or 2 crude uranium based bombs since the fall of the Soviet Union AND it has maintained its conventional MAD deterrance of the artillery concentration against Seoul. What this does is just confirms a larger negoatiating chip, and emphasizes the importance of China in the talks; do they want a nuclear armed North Korea on their border also?

Finally, it reconfrims the incentives for countries that are not on good terms with the US to either get on good terms real fast, or to go nuclear, as there is a marked difference of US behavior towards the non-nuclear, conventioanlly numerous but weak Iraq, and the nuclear, conventionally long term weak North Korea. What are the differences... ta da... Nukes and oil. Iran looks around nervously now and whips the hamsters that are running in the wheels that power the centifuges to spin faster.

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Wednesday, February 09, 2005

Bar Notes

  • Gooskis in Polish Hill has a $1.75 Wednesday night Import Bottle special (Bass, NewCastle, Amstel Light, Guinnuess etc.) from 10:00pm to midnight. I can not make that tonight but it is something to keep in mind.
  • The Warsaw in Polish Hill is renamed the Rock Club, but it looks to be the same shitty but wonderful bar.
  • The Lava Lounge on the Southside is instituting a Friday night cover to pay for their 80's night D.J. This is effective this Friday.
  • P.J.'s Sports Bar on Forward in Squirrel Hill has some good flavored malt drink specials but is otherwise creates a sense of none-ness while there. Not a good bar, definately does not do justice to the space that Champs previously was in.
  • The Bridge on the Southside has 1/2 off Wine bottle night on Tuesday. This is something that I will need to exploit sooner or later.

Tuesday, February 08, 2005

Budget Realities

Dwight Meredith at Wampum Blog is being unfair again. He is looking at evidence and reality (pdf) to make the judgement that the Bush administration is full of shit on its budget. The first Bush budget projected an on-budget surplus of $55 billion, and even with deceptive accounting, we are looking at an on-budget deficit as projected by the White House of $560 Billion dollars. (On Budget by definition excludes Social Security from consideration) And remember this $560 Billion dollars EXCLUDES the Iraq/Afganistan supplemental. So go read Wampum for the low down as it is a damm good argument against the canard that the deficit was caused by events versus policy choices.


Yen Liquidity Problems

Via Calculated Risk, I see a Financial Times article that is stating that the Japanese Central Bank was unable to attract sufficient Japanese domestic savings for their latest bond offering. They were only able to get 70% of what they wanted, because no one else wants almost no interest bonds.

So what does this mean to us?
Well it suggests that the Japanese Central Bank will need to either stop propping up the dollar at the current interest rates, or raise interest rates so that they can continue to transfer Japanese savings to American consumption via debt. It also suggests that the Japanese are still in a liquidity trap, which is one of the things that Greenspan has tried to avoid for the US economy; free money is useless money in this situation.

It is not a huge deal right now, but it will be a huge deal that will start to seperate the Japanese and Chinese Central Banks from their cooperative stances on delaying the American Dollar Death Bet as long as the US Federal government decides to make our budget an absolute joke for the foreseeable future. We are looking at reasonable guesstimates of reality of 4.1-5.5% Federal unified budget deficits if Bush gets what he wants and heroic assumptions about spending discipline are made. The appetetite for global savings in the US is massive and devouring the ability of other economies to benefit from their wealth, productivity and thrift.

What is the Bush-GOP Endgame for '08?

Cernig, one of my co-bloggers at Left of Center has an interesting post up about how the Bush Administration is making life hell for whichever party is in the White House after this term. As Cernig notes from this current budget proposal that it cuts popular domestic programs, and requires the fundamental default on the Social Security trust fund to justify the extention of the 2001, 2002, and 2003 tax cuts. I think that there are two things going on here. First, is part of the long term shift of taxation off of wealth and low marginal utility of the dollar earners towards complete taxation of labor and income from the middle. And secondly is a belief among the Bush administration that the long term future of the Republican Party is not tied up in being effective managers of the American government and economy, but instead the effective managers of the symbolic manipulation of the American mindset so that they always vote Guns, God, and Gays versus their occassional intrepretation of the surrounding economic situation.

I'm reaching here, and I know it, but I can not figure out what the long term political strategy is unless it is to lose the White House in 2008 or 2012, let the Democrats spend their time in office fixing the mess (see Clinton's '93 budget deal) while getting the blame for not enacting a positive agenda AND also the blame for taking the needed steps of slowing down spending, increasing taxes and most likely retrenching US military forces from at least some foreign adventures, then run against the Democrats in the next election as being weak, tax-raisers who are also immoral. This is the only thing that makes electoral sense to me, and I am assuming that assuring Republican dominance is a goal of at least Karl Rove as he sees himself as a central figure in a parrallel of 1896.

Otherwise, why would the budget continue to rely on shifting of taxation to the reasonably prosperous parts of the middle class. There is no relief or exemptions of the alternative minimum tax for FY 06 in the initial budget. This change will reduce exemptions, credits and deductions for most tax payers that earn more than $75,000 but do not earn enough tax advantaged income to be prime beneficiaries of the tax cuts and changes that Bush pushed in his first term. Congress will most likely make changes, costing the US billions more in deficit spending, but this is not the only case where the former stronghold of the Republican Party, Upper Middle class Country Club Republicans are being slammed to pay for the policies of Bush. And then we have Social Security looting deform which is designed to seriously screw anyone who actually needs the security part of Social Security. Maybe I am being too much of a material deterministic right now, but these policies that Bush is proposing makes good chunks of his base worse off, so it is either Bush does not care about the shape that the GOP is in January 2009 OR he/Rove believe that they can win on Culture War issues for the next generation while the costs of the Bush agenda are paid. I don't know which one to believe is more plausible.

Couple Iranian Questions

I just have a couple of questions about Iran that I need to look into so I can start to have better opinions:

1) When is the best campaigning season? I imagine that the timelines are a lot like Iraq, at least for the western part of Iran, so either early spring or early fall. Is this true?

2) When is the best time to "introduce a new product" to the American people? We know that it is not August, and that the run-up to war in the US took ~6 months including three straight months of lying through their teeth. Is this timelime comprable or could it be compressed?

3) Will they go with "the mullahs eat babies" OR "they are against satellite tv, and thus unfree" spiel?

4) With the Saudis announcing production increases of 3.5 million barrels per day within four years, how fast can they bring that online? How sweet is it? How heavy is it? My guess is pretty sour and pretty heavy for if it was light sweet, they would already have been pulling it from the ground as that is big money oil. Now what is Iran's oil production? Why it is about 4 million barrels a day, of which 2.5 mbd is exported. And it is predominately medium quality oil. Is this relevant to the Saudi decision to increase their export capacity?

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Monday, February 07, 2005

Thoughts on retail ED

The bureaucrat is talking about a subject dear and near to my heart, economic development at the neighborhood level and how it needs to intersect with broader public policy positions for it to be effective. Retail development tends to be a horrendous strategy because there are very, very few instances in which it can create new wealth, and thus wages and tax base within any area of study that is larger than a neighborhood or a small municipality (hi there Breckenridge) Retail development at the micro level tends to be a zero sum game.

Now there can be arguments that there is a non-zero sum component and the core of this argument is that the new retail development smashes through efficiency and productivity barriers to such a degree that the resultant lower prices and greater efficiency will lead to a significantly lower cost of doing business in an area, and thus will lead to more jobs. This argument is often an implicit core of an aggregation economic development strategy for business to business suppliers (cluster development, Jacob's interpretation of urban Schumpeterian creative destruction, creative milieu (Italian artisan development etc)) but I have not really seen this argument made on an explicit basis for micro and regional level projects.

The only place I have really seen most of this argument formed is in the research of local retail monopolies where new competition drops prices by a reasonable margin. Most markets have some consumer surplus transferred to the producers due to the entry costs (big PDF) to a market, so there is some evidence to support at least a non-blanket prohibition against using small public subsidies for retail development. The biggest backer of this argument is most likely Wal-Mart as there is enough evidence to suggest that they, along with other massive box retailers, can make the fixed costs irrelevant AND that they have a significant productivity edge over smaller establishments so as to return more consumer surplus to the consuming public.

Now the size of the subsidies that are appropriate is most likely miniscule, so this entire post is more of a contra-positive existance claim that there can be cases where the strict economic development argument against retail subsidies may be wrong. Now if you want to throw in a community development and effective urban design angle against subsidizing big-box retail in high density urban neighborhoods, then you'll win me over in half a breath, but I think that an existance claim can be made that there is the occassional time when retail development is not a zero sum game.

Super Bowl Round-up

The game was good but the hype was boring as hell as the Patriots squeaked by again to win the Super Bowl. I think that the words that I said against the Steelers' applied: remove half a dozen plays from your viewing and you would have thought that the Eagles won rather decisively. However those half-dozen plays included five big plays for New England, and a single big play for the Eagles. That is the nature of the Patriots, they do just enough to win (D is for Diploma and Diploma is for me must have been their motto in high school). But damm that was a good game, great hitting, good defense, interesting play calling, and some horrendous brain farts.

  1. Dillon and the threat of a running game makes the offense so much better
  2. I could not understand the third down hand off to Faulk with 1:25 left to go, they should have gone for a screen or a quick hitch or something that would have given them a chance for a first down.
  3. Great game by Josh Miller the punter.
  4. Rodney Harrison deserved the MVP --2 INTs, 1 sack, 1 massive physcical play to set up a forced fumble, and otherwise a great game leading an even more depleted secondary.
  5. Tedi Bruschi deserved the MVP --- a couple of sacks, a great INT and a great game stuffing the run and playing the short zone.
  6. Tom Brady deserved the MVP --- great game overall, played smart, played hard, played effectively.
  7. Deion Branch deserved the MVP --- 11 catches 130+ yards
  8. Terrell Owens deserved the MVP--- if he was not on the field, the Patriots would have cheated up to play bump coverage, roll the safeties into the box and shut down Westbrook.
  9. What the hell was up with the Eagles 5 minute and 2 minute offense?
  10. The Patriots seemed to be playing slow in the first half, the offensive line was getting manhandled, and the deep passes were there but not being caught. (except for the sideline out to Patton which was overthrown to the outside)
  11. How much will the loss of Crennel, Weis and any other assistants that they take with them hurt the Patriots next season?
  12. Why was Seymour playing a lot of passrushing down nose tackle?
  13. The Patriots really need to get at least one more warm body that can actually play in the secondary. They started the season with seven players (Law, Poole, Samuals, Gay, Wilson, Harrison, Reid) that should actually see the field as DBs and entered last night's game with six players who are trained and effective DBs. Yes the stop-gap measures of Troy Brown and Don Davis playing out of position worked well enough, but I have to question whether the Patriots really need six outside linebackers on the roster.
  14. Which New England players will be retiring? I will not be surprised if Phifer retires, slightly suprrised by Traylor and potentially Ted Johnson retire, and not shocked if Rodney Harrison retires.
  15. When is the Combine?
  16. Thank god for Arena ball on TV -- withdrawal will not be cold turkey.

Who said this?

"We're going to borrow $758 [b]illion over the next 10 years to set up the personal retirement accounts...." acknowledging that the personal accounts will help younger workers but will not solve all the problems of solvency.'

Why none other than Vice President Dick Cheney,(from Fox via Talking Points Memo) that flaming Democrat and believer in reality. I am still really confused why the hell Bush is pushing Social Security so hard because it really makes no sense on any level politically unless it is being used as a focal point of opposition in order to run everything else through Congress with minimal oppoosition. That is a possibility, but even if that is the case, isn't it dumb to have the administration de-facto position for a massive policy change to be "it does not fix the problem that we claim we want to fix?"

Sunday, February 06, 2005

What I wnt to see tonight

The Super Bowl starts in five hours, and it is looking like this should be a good game. I am wagering that the Patriots win and cover the spread, so that means no last minute clutch kicks from Vinitieri --- a good thing there, the Pats need a signature game to cap off a signature play-off run of domination. Now here are the things that I want to see:

  1. Rodney Harrison playing some cornerback against Terrell Owens in the first couple of series in order to give him one hell of a bump and thus a test of his ankle. Drop Harrison back into the short flat and have the normal corner take the middle deep.
  2. Off-guard run, trap, counter trey, delayed dive, toss sweep, skinny post down the middle. That is what I want to see on the first series.
  3. Dust-off the game plan for the St. Louis Super Bowl and run McGuinest and Vrabel on Westbrook as they did against Faulk. Beat him senseless.
  4. Force McNabb to make good decisions while moving.

Do that and the Patriots win. Time to grab chips and dip.

Saturday, February 05, 2005

Salary Cap Blog

I am a football fan who is interested in the GM end of the business a lot, so Miguel of half a dozen Patriots' forums is an invaluable e-acquaintance as he knows the Patriots salary cap info down cold, including the signing bonuses and incentive clauses of the 33rd undrafted rookie free agent signed in July. The guy is good. And now he is expanding his knowledge and expertise to the rest of the league with the

Salary Cap Blog

It is a great resource, well written and well sourced.

Friday, February 04, 2005

Social Security deform for dummies

Matt Yglesias has a good run down of the actual mechanics of the supposed plan that Bush will be pushing to loot Social Security in order to theoretically afford his tax cuts going permanent instead of sunsetting. I'm going to excerpt large portions of his work as it is clear, concise, accurate and understandable.

The Bush actually operates in three distinct phases, and it's important to understand all three, and to understand them as separate, because only phase two is even remotely construable as an effort to improve Social Security's finances. The first phase is to default on the General Fund's debt to the Social Security Trust Fund....

Once that's done, Social Security doesn't have nearly enough revenue to cover currently promised benefits. The White House wants to resolve this through some unspecified level of benefit cuts.... From here on out, Social Security's accounts will be balanced in a cash flow sense. The amount of money paid out each year will be equal to the amount of FICA collected. That's phase two....

Phase three is the proposal to allow workers to divert one third of their payroll taxes into something resembling an account under the Thrift Savings Plan. Once a worker -- call him "Matt" -- chooses to do this, Social Security's cash flow will be messed up. Four percentage points of my wage income that were supposed to be going to pay grandma's Social Security benefits are now sitting in my private account. As a result, the government will need to borrow some money to pay grandma's benefits. The administration believes that that money can be borrowed at a 3 percent rate of interest. When Matt retires, his guaranteed benefits -- already substantially cut during phase two -- will be cut a second time. The size of this cut will be equivalent to the value of Matt's total contributions to his private account, plus 3 percent interest per year. Thus, once Matt retires, he will have access to all of the money in his private account, but his guaranteed benefits will have been cut twice. His little brother, meanwhile, who didn't put money into his private account, will only have his benefits cut once.

Now, the upshot. The White House says the average worker can expect a 4.6 percent real rate of return on his private account. Under explanation two, this makes borrowing the money at a 3 percent rate turn out to be a smart investment move. You get a 1.6 percent net return.

There is a whole lot more useful information in this post, so go read him. My initial reaction is huh? As Atrios is gladly hosting the CBO chart, it looks like it is a benefits cut first and foremost with all of the downside risk transferred to the individual AND having the government take a decent size bit out of the upside reward. To me it looks like this is a system that the Democrats should very easily pillory as "more complicated than Hillary Care" (Klein from the Daily Show last night) and thus using the talking points developped by Ruy Texeiera

I can not figure out if this is truly the political objective of the Bush administration or some kind of double reverse, triple hand-off Statue of Liberty draped in Freedom(tm) type of play as the Bush administration is admitting no solvency plan for Social Security. The economic angle does not make any sense, for if the Republicans believe as a matter of ideology and faith, that people are rational, that the market already does a damm good job of allocating resources AND there are very few needs for information asymetry corrections etc, then the additional 1.6% returns on investment are not there. Theory will predict that people will shift their freed up assets that were previously held in US Treasury bonds back into US Treasury bonds in order to maintain their current risk-reward profile, which according to the assumption of homo-economicus rationalis, is an optimal profile. There are no free returns here without any risk. The risk, under this simplifiying assumption of complete rationality, is just being shifted away from an entity that can handle systemic risk, onto individuals who can not affordably cover this risk. Therefore the expected value of a person's Social Security benefits as is with no policy change, should be significantly higher than the proposed Bush changes just on the basis of the ability to insure against retiring in a bad year or a bad cohort.

This is not rational policy or political analysis that could exploit the Democratic coalition. President Bush has no political capital accumulated to this specific project from the campaign. He called John Kerry a liar for claiming that Bush would propose basically what he is proposing now. He is letting his allies twist in the wind and is acting as if he is a lame-duck. This is The Mother of All Faith Based Policies.

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