Hiding University Reform inside Tax Reform

After the American Century

The traditional tax problem for Danes is how to reduce the world's highest taxes while keeping the welfare state. A Tax Commission has just proposed 35 billion kroner (a bit less than 7 billion dollars) in income tax reductions, to be financed by changes in the tax structure. I want to focus on just one area, reductions in student grants, because this is far more than it appears to be, amounting to a major reversal of government policy on higher education.

The proposal is that student study grants be reduced so that they cover four years. To people outside Denmark, this still sounds wonderful. Not only do no university students pay tuition, but all students qualify for a scholarship worth about 55,000 kroner ($10,500) each year, after taxes. These grants have made it possible for children of working class parents to make their way into the professions. More than just about any other nation, Denmark has made its education system egalitarian. I have had many students who were the first in their families to attend university, and some of them have gone on to quite distinguished careers.

By comparison, in the United States taxes are considerably lower, but parents start saving early to send their children to college. It can easily cost $150,000 (c. 800,000 kroner) to send just one child to university, when tuition, room, board, transport, health insurance, computers, and books are all taken into account. The hardest economic years for American parents are those when children are in college. In contrast, Danish parents may pay huge taxes, but the year a child begins at university creates no hardship, because of the generous "SU," or student grant. In effect, Danish parents have been forced to save for their child's education, and reap the benefits if a child goes to university. But the Tax Commission in effect wants to steal the money middle-aged couples have saved through taxation for the last twenty years. They have paid in with the expectation that their children will receive student aid. But the Tax Commission will divert that money to income tax reductions, and these parents will have to pay a second time if they want their children to get an advanced education.

In theory, it takes a Dane a minimum of five years to complete a BA and MA. In practice, the average student needs six years or more. Reducing the student grant to 4 years means that it will be impossible to get an MA without taking sizable loans, which supposedly will be made available to all who apply, though one wonders if this will really be so. A great many students will likely stop after the BA degree, because they do not want to saddle themselves with large loans.

The Tax Commission surely understands that Denmark will produce fewer MA students as a result. Indeed, I assume that this is their goal, in this way forcing more people to start working full time at a younger age. When the same political coalition was in power during the 1980s and early 1990s it forced changes in Danish education with the professed goal of making the BA a terminal degree for most students. They also cheapened the BA+MA education by cutting it one full year, from six to five. The notion then was that too many people were getting advanced degrees. The then Minister of Education was Bertel Haarder, and people joked that BA stood for Bertel's Academics.

Students see the BA as a second-rate degree and most of them still want to go on for the MA. Yet that earlier reform did save money by reducing the BA+MA combination to five years. This meant that there was a full year less time to really learn a foreign language such as Russian, and it meant that students were less ready to write an MA thesis. For faculty, students losing a year of education meant a reduction of almost 20% in how many people there were to teach. For the gymnasiums, it meant that new teachers were less educated.

The Tax Commission's proposed reduction in student aid extends this earlier downsizing. Once again, the goal is to get more students to stop after their BA, and to reduce the numbers at the graduate level. Once again, the universities will have fewer to teach and suffer cutbacks in staff. The loss of entire departments may follow in some cases.

It is disingenuous to claim that the government's goal is to reform taxes. The amount spent on the extra year of SU is 750 million kroner a year, or a little more than 2% of the proposed savings on personal income taxes. The real goal is to further reduce graduate programs and eliminate some MA programs. One very real result will be a decline in the number of faculty positions, saving half a million kroner or more per eliminated position.

The Tax Commission ignores these larger consequences because they would be unacceptable to many Danes. Indeed, cutting down graduate studies is the exact opposite of the government's own professed desire to invest more in research, raise the education level, and prepare for a future where a highly-educated workforce is the key to success. But this new tax proposal will shrink the pool of highly qualified graduates, eliminate faculty positions, close some MA programs, and undermine the efforts of Danish universities to remain competitive with other nations. It will further demoralize faculties (especially in the humanities) that have been suffering cutbacks for years already. One likely result could be a brain drain, as many of the very best graduates go to work in better financed universities abroad.

As far as education is concerned, this is not a tax reform but a reversal of the government's supposed program.

Stimulus Package, or Stimulus Interruptus?

After the American Century

Politics is the art of the possible, and a good politician can parlay one success into widened possibilities. Surely the desire to widen his consensus is what has Obama going to visit the Republicans, seeking their support for the $825 billion stimulus package. The Republicans, having learned nothing much from the failure of the Bush approach to the economy, want more tax cuts, while the Democrats point out that if you don't have a job, a tax cut is useless. The Obama plan does include tax cuts of $275 billion, so that is part of the package, but the majority of the money would be spent on projects. Since a staggering 75,000 layoffs were announced yesterday alone, the need for direct government spending, priming the pump, seems obvious, though not to Republicans, evidently. Most economists agree on this.

But where is the 800 billion going to be spent? The particular projects the Democrats support are in line with Obama's call for a greener society with a comprehensive Internet that reaches all parts of the United States. In effect, he wants to create the equivalent of a Rural Electrification program to link up all parts of the US with cyberspace. This idea has real merit, because studies have shown that better communications reduces the need for as much physical movement, increasing energy intensity. The obvious example would be the shipment of documents as email attachments rather than as special delivery or FED-EX packages. A comprehensive information system will improve productivity and put the entire nation into contact with cyberspace.

Other spending would improve the electrical transmission system, which has not been growing much at all. In fact, deregulation slowed down the building on transmission lines, for reasons that would require a long Blog - actually that required about 3,000 words in chapter five of my new book. But leaving aside the mistakes of the past, the present need is to replace old equipment and expand capacity, because the connections are simply not robust enough.

The Democratic plan does have some pork in it, however, and perhaps Obama can use the Republican complaints to cut out some of that fat. But one man's useless pork is someone else's bacon. Or, in this case, condom. For some of the stimulus plan was originally intended to go to family planning, which included purchase of large numbers of condoms. I call that recontaining the stimulus. Obama has apparently agreed to drop the condoms. (Sarah Palin and her oldest daughter could only agree). After all, a baby boom would stimulate the economy both immediately and in the long run.

Now that the condoms are off, as it were, let us hope the Republicans get more excited. Without their support, we might have a filibuster, or stimulus interruptus.

The Honeymoon

After the American Century

New presidents have a honeymoon with the public that lasts a few months in most cases. Obama certainly is having a good honeymoon, with an approval rating of 73%, with only 14% disapproving. Another way to look at this is to recall that Bush's rating fell to around 25%, with some fluctuations. So there is one quarter of the public that supported Bush no matter what he did, and presumably this same group does not like Obama much. He has probably achieved the highest rating possible in the wake of the Republican debacle.

Furthermore, the public is not equally enamoured of Congress, which therefore is in a weak position to oppose his agenda. The chance to achieve real change exists, but the opportunity will not outlast the spring - at least if history is any guide. Were these normal times, Obama could move immediately on creating a new medical system. Instead, he has to use this precious time to fix the Bush economy, and one can only hope that some innovative programs are part of the stimulus package.

Look on the right column of this Blog, and each day you can see precisely how much of Obama's first hundred days remains. That is roughly the honeymoon's length, though the term 100 days comes from Roosevelt's New Deal. FDR accomplished an incredible amount in 1933, in good part because the Depression had already lasted for more than three years, and Congress felt a great urgency to repond. This suggests that, paradoxically, Obama may benefit, in the short term,. if the economy remains weak for a few more months, forcing Congress to act.

Obama: The Change is Real

After the American Century

I must admit that I wondered if the inauguration of Obama would make a visible mark on daily life. But landing in Boston yesterday and talking to people, the random encounters of an ordinary day, strongly suggest that Americans really do sense a major change. At least in New England, George Bush was experienced as a burden that has dropped away, even a nightmare from which they now have awakened.

President Obama's first acts underline the sense of change. His staff, should they leave the White House before he does, will be prohibited from lobbying so long as Obama remains president. This is a much higher ethical standard than before.

Obama has also insisted that government be more open, and that the federal officials should obey the spirit of the Freedom of Information Act. That is, they should give out information in all cases unless there is a clear and definite reason not to. Not incidentally. this may reveal some less than noble activities of the Bush Administration. But as time goes on, this openness will become a constant pressure on Obama's appointees as well.

Most significantly, Obama has ordered that the Guantanamo Prison be closed and its inmates either released or placed in American prisons where they will have the protection of the Constitution. He is returning the nation to the rule of law, including a repudiation of any form of torture - which the Bush Administration pursued both in Cuba and through other nations outside the United States.

Finally, Obama has set an example by freezing the salaries of those on his staff who make more than $100,000. Counterpointing this gesture and making its symbolism all the more necessary, it came out today that literally days before Merrill Lynch was purchased by Bank of America, the virtually bankrupt Merrill Lynch gave selected executives huge bonuses - several billion dollars in bonuses. With one hand they were begging for and getting a Federal bailout and with the other they were lining their own pockets. Quite possibly this was not a crime, legally, but ethically it stinks. That was the end of the Bush era, the wage freeze is the ethical beginning of an Obama era that stands for fair play, the rule of law, the abolition of torture, and the end of cozy relations between lobbying and governing.

Not bad for just two days work.

Americans Are Reading More

After the American Century

A new Census study revealed that more Americans are reading fiction and poetry than they were in 2002, the first time that number has gone up in decades. Slightly more than half of all adults read a literary work last year, though unfortunately the study did not differentiate between those who read just a single short story and those who read for several hours every day.

Men still read considerably less than women, but even they were reading a bit more. Given the competition with TV, film, computing, and the vast leisure industry, any gain is worth celebrating. As an author, I have worried that this might be the last generation that really reads books.

But the celebrating should be muted. The Association of American Publishers reported sales down more than 3% for 2008, wiping out a corresponding gain from 2007. If people are reading more, they may be borrowing books from libraries or friends rather than buying them. Compared to the huge losses in many industries, the bankruptcies, the foreclosures, and the rising unemployment rate, however, a 3% fall seems like nothing at all.

E-books still are a tiny segment of the market, less than 1%, though Amazon has made an effort to develop this area, selling its own special reader, The Kindle. Waiting lists are long for that device, however Meanwhile, many classic texts are available on-line for free, and to the extent that people go to sites like Bartleby and get their literature there, they will not be counted.

Overall, publishing is doing better than the music industry, which has seen sales of CDs decline drastically, by 45% since 2000. On-line sales have increased, but not as rapidly, so there is shortfall that is hurting the big music companies. Overall, the book publishers seem to be in a more stable situation. Thus it turns out my decision not to seek stardom in rock star back in the 1960s has finally been vindicated.

Are There Any Good Investments Left?

After the American Century

In 2008 no matter where you lived, chances are you lost money. Houses lost value, stock markets fell most places by a third or more, and if you were unlucky enough to hold many British pounds or Swedish kroner then you lost an extra 20% compared to everyone else.

Perhaps the natural thing to do in 2009 is to put any of the money that is left in a savings bank and wait for the economy to stabilize. But most assets are not liquid. For example, few are eager to covert their homes into cash, as they are worth less now than a year ago, and they have to live somewhere. Likewise, people who have money tied up in pensions typically have to keep putting money in and they cannot take it out until they retire. In other words, most feel they have few options, other than holding on to their shrinking pension and their deflating house and hope for better economic weather. Many people I know are playing the lottery, just a couple of tickets, here and there. hoping to hit it big. They lose maybe $20 or $30 a month that way.

But the options are not all bad. For years I had trouble getting skilled workers to the house to put new tiles in the bathroom or make repairs, because there was so much other work to be had. When the economy cools off, these guys may actually show up, as they have promised to do several times over the last two years. This is a good investment, because I get to enjoy it, and the house keeps its value.

By a similar logic, people should buy art in troubled times. In part this is to help artists, but also I realized some years ago that by the time you purchase a good reproduction of a famous work of art and have it suitably framed, the cost is almost always more than $100. Yet after a year or two, I find myself tired of most such prints, and so replace it and find myself out another $100. Eventually, you have a closet full of nicely framed, somewhat faded copies of famous paintings. Worthless clutter that may easily have cost $500.

Instead, spend a bit more for a lithograph or painting that is authentic. I bought a lithograph on an impulse last week, for less than $200 (framed, too). It's better than lottery tickets, that usually lose all their allure in a couple of days. OK, the litthograph is not that large, but I once met the artist, so it feels a bit personal, and he has regular exhibitions. It is interesting to look at, and I am not likely to get tired of it, at least not soon. Also, there is a chance that it will still be worth something years from now. I am not saying go and buy art as an investment, because that is hardly a sure thing. But buy art rather than posters, and you get to enjoy it., and you will have more closet space. After a couple years, an art dealer may trade you for somethingh you are tired of, for something else.

There is a small hidden agenda in these two suggestions. If we all used a bit of money on home repairs and on art, it would help the local economy,. Why give the money to some charlatans who claim they know which stocks are going to rise in Asia or Eastern Europe or New York? Maybe you can frame stock certificates and put them on the wall, but will you really enjoy that?

For us small fry without fortunes, there are still good investments, things right in front of us, things we can enjoy for years. And I don't mean lottery tickets.

Precision Bombing? Nonsense

After the American Century

Once again, official spokesmen are chanting a technological hymn. The words have been much the same for more than half a century. A serious, well-groomed person wearing nice clothing, who seems like a good middle-class person, tells us that the military must defend its civilian population. But not to worry, s/he continues, because with the fabulous new accurate weapons being used, the bombing is precise. Sometimes they say "surgically precise."

This is nonsense. The religion of accuracy was preached in Vietnam and again in every war since then, and in every case many more civilians die than enemy soldiers. In fact, the twentieth century was a disaster for civilians in warfare. During World War I civilians accounted for one out of every seven deaths. But then weapons got far more powerful (and accurate of course), and in World War II civilians accounted for two out of every three deaths - 67%. With each subsequent conflict the proportion rises further. In Iraq it appears that more than 90% of the dead are civilians.

I certainly hope that the weapons do not get any more accurate and precise, or we will no doubt reach that perfect state where the bombs always go where they are intended to go, and 100% of those killed are bystanders. We have almost reached this point now.

Some will read this column as a criticism of Israel, for invading the Gaza Strip, and for the "accurate attack" on a target which turned out to be a UN school. But my point is that all the world's powerful military establishments use these "accuracy" arguments. It is a comforting thought that shooting the bad guys resembles a video arcade game, and there is a nice euphemism for civilian deaths - "collateral damage."

Extremists on both sides are happy when the missiles start to fly and the heavy artillery wheels into place. Neither side can bomb its way to peace. But the arts of peace are more difficult and less glamorous in this action-film fantasy world than the martial art of war. Indeed, the New York Times recently reported that the US military is now using arcade games as a recruiting technique. The nice thing about video games is there is no blood on the floor, no matter how many precision shots are squeezed off.

Dramatic Collapse of the American Auto Industry

After the American Century

]Update: In 1212 I can look back and see that the Obama Administration did save GM and Chrysler. Not only that, but GMis once again the world's largest car maker. No thanks to the Republicans, however, who were ready to let Detroit die. However, this piece accurately reflects the apprehension and gloom that was widespread in the autumn of 2008.]

It is a dramatic story, the collapse of what used to be the core of American industry. A century ago the automobile industry was rapidly growing in Detroit, with many of the most dynamic companies long since forgotten. The Reo, the Hudson, and the Packard are long gone now. Yet what emerged by 1930 was not quite a monopoly but what came to be called "The Big Three" - beside which remained a few small fry another thirty years, such as Studebaker and Nash Rambler. But the Big Three seemed the stuff of industrial immortality - dominating the US market and expanding into foreign lands as well.

Curiously, the relative strength of the three is inversely related to their age. Walter Chrysler's company is the youngest, though that is not why it is now the weakest. General Motors came about as the merger of five automakers and surpassed the older Ford Motor Company (founded in 1903) to become the world's largest car company, a position it retained for decades.

This is not the place to analyze the gradual decline and fall of all three companies, which would take volumes. But none can doubt that these companies lost their technological edge, with many improvements coming from Europe and Japan. The latter particularly excelled at superior productive systems, requiring fewer workers to produce cars, and offering automobiles with far fewer production mistakes as well.

Yet the current malaise of the industry is also related to its poor leadership on environmental matters. Detroit executives have continually resisted pressures to raise the average miles per gallon of their fleet, and sought ways to escape legal requirements in this area altogether, notably by selling ordinary households SUVs and trucks. In the 1980s and 1990s, a time when less than 3% of all Americans are farmers, the sale of gas-guzzling trucks shot up. Meanwhile, Honda, Toyota, and other foreign producers not only produced more efficient cars, but they began to do so inside the United States.

As a result, where once American lawmakers would rally to support Detroit, today no one has much appetite for the job. Southern lawmakers often have a European or Japanese automobile plant in their state, and they also are typically keen on the idea of free market capitalism. Subsidies are not their way. Environmentalists are disgusted with Detroit's foot-dragging on pollution and car efficiency. The great middle class may be sympathetic to the plight of the workers, but they often own foreign cars themselves, and they suspect that the automobile magnates have made their own problem. Conservatives generally do not want to help the car companies unless they negotiate much less advantageous deals with labor. (In fact, the major cost of making cars is not labor, but this point is lost in most debate.)

Support for the automobile companies is strongest in the states where the jobs will disappear if they collapse entirely - Michigan, Ohio, Indiana, Illinois, and certain districts where assembly plants are located. But so far this local support has not been enough, and no clear plan has yet been developed to save the Big Three.

Worst of all, it is not easy to fix the problems these manufacturers face. It takes years to get from the blueprint of a new model to a factory producing it and a team of mechanics ready to service it. But the Big Three do not have years. GM and Chrysler are almost bankrupt now, and the billions they need will not come from banks. Ford is a little better off, and says it does not need federal money immediately. But the other two do, and even though they have closed down their plants for up a month at Christmas, their debt keeps increasing, because of all the retired autoworkers whose pensions must be paid, because corporate debt must be serviced, and because even non-productive factories have heating bills, insurance, and other fixed costs that keep running.

Meanwhile, the few consumers who are visiting automotive showrooms rightfully worry about purchasing any American car. What good is a guarantee if the company dies? Where are spare parts going to come from, if the manufacturer ceases to exist? This problem is going to get worse before it can conceivably get better. Yet with three million jobs on the line, the collapse of the car industry is just not an acceptable option for either state or national government.

The fate of the automobile companies is a close parallel to the fate of the "American century." We seem suddenly to be entering the afterlife of a once powerful economy.

How Bush Finally United the Iraqis

After the American Century

An Iraqi journalist has become famous because he took off his shoes and threw them at President Bush. This appears to have been a spontaneous action, or at least not thought out in advance. Had he really wanted to hit Bush with his shoes, he should have stood on one side, near the front, and waited until the president was looking the other direction. And he should not have shouted until the shoe was in the vicinity of the commander-in.chief's head. However, judging by the video. this appears to have been an emotional outburst, not a premeditated attack. Throwing a shoe is a traditional Iraqi way to insult a person, so the action makes more sense in that nation than it would in Europe or the US.

I do not find this incident surprising. Bush's mistaken and unnecessary invasion of Iraq has led to the deaths of huge numbers of civilians, perhaps 30 times as many as died in 9/11. This could make someone angry. Muntader al-Zaidi, the journalist, a 28 year old correspondent for Al Baghdadia, an Iraqi television station, was only a few rows away from Mr. Bush, when he slung his shoes, and shouted in Arabic: “This is a gift from the Iraqis; this is the farewell kiss, you dog!” He then threw the other shoe, shouting, "“This is from the widows, the orphans and those who were killed in Iraq!” Security police immediately subdued and arrested him. It appears that he was also beaten, which was hardly necessary.

Bush showed quick reactions and some agility in avoiding the flying shoes. But he will not be able to avoid being nailed by historians, even if his Administration did manage to lose (destroy?) large numbers of documents related to the invasion of Iraq.

The great majority of Iraqis, while divided by religion and much else, have embraced Muntader al-Zaidi's action, in a rare moment of unity. In any popularity contest, he is a "shoe in." Millions of Arabs all over the Middle East seem delighted with the idea of throwing shoes at President Bush, and the journalist has been widely praised for his courage. Is it possible that Bush has now united the Iraqi people in support of free speech and democracy?