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Earlier this week, I tuned into UML Sunrise to hear Michael Goodman, of the UMASS Donahue Institute with his thoughts on the scary economic situation (I’m getting sick of the technical jargon and decided to call it how it feels, and that’s scary). Goodman is the Director of economic and public policy research at the Institute, and he was “shocked” that, as others have noted, the planned bailout of Wall Street has no oversight built into it. Apparently, though, Paulson is now admitting that oversight is needed for the $700 billion handout to failing corporations. It’s hard to keep up as the situation is changing by the hour! The conversation with Goodman also included a discussion of how Wall Street’s woes will affect Main Street: (1) businesses can’t get loans and only consumers with perfect credit scores and 20% down will be able to access capital, (2) as the government overspends to buy up the bad debt on Wall Street, the value of the dollar will continue to shrink, which affects each of us every day, (3) in Massachusetts, where the financial services industry is a big part of the economy, there could be shrinking employment, (4) the state also depends heavily on capital gains for revenue; with shrinking stock prices, this money will also dry up. Hopefully, the podcast will be up soon while this information is still relevant. Last week, UML Professor of Economics, Ravi Jain was on with a calm and logical survey of the scene which still provides valuable insights. His point about the bailout is that these companies gambled and to be bailed out because they lost the bet is not setting a good precedent. Some of these so-called experts were leveraging $30 to $1. The moral hazard is that companies may not learn a lesson and be encouraged to repeat the behavior. As host, Christine Dunlap, asked, referencing the dot-com boom and the last real estate boom, ‘why don’t we learn?’ Co-host and Head of the English Department at UML, Melissa Pennell, had the final word: “Maybe we need a psychology professor.”

Last year as the first wave of foreclosures was hitting the news, people were blaming homeowners who didn’t read the fine print or those who speculated that real estate prices would keep going up; next in line were the subprime lenders who were handing out adjustable rate/no-money down loans, often without any discretion whatsoever (no income, no problem!). Further up the food chain, we find the big money financial institutions like Merrill Lynch and Lehman and others, the ones who bought the risky loans and repackaged them as securities with attractive rates selling them to investors and holding them in their own portfolios and for awhile earning nice returns. Earlier this week, a Wharton School of Business Professor, Jerry Siegel, wrote in the Wall Street Journal (“The Resilience of American Finance,” September 16, 2008) that the cause of the downfall of these giants was “leveraged risk.” He adds that

Their demise was caused by bad risk management, and a failure to understand the high risks of an overheated real-estate market, the root cause of our current problems.(my bold)

(Gee, sounds a bit like the hapless homeowners everyone was blaming last winter!) Siegel adds:

So, Siegel traces everything back to the overheated real estate market, and certainly home prices rose to giddy levels in recent years, but that is like a rapist blaming the victim for being too attractive. The rise in home prices (fueled, I believe, by low interest rates) attracted those who wanted to make money off of the boom, and they found a way to do so through sub-prime lending and the following securitization of the loans. As Barney Frank said in April “It was not just the housing bubble,” said Frank. “People made housing loans that shouldn’t have been made.” (The blog Civic Boston has an insightful account of Frank’s appearance last April at the JFK Library).

You still have those who blame the consumers, those who tried to buy homes they couldn’t afford (was anything affordable in recent years?). Some are calling for mandatory financial education for potential homebuyers; but until we have mandatory ethics classes for corporations, let’s let the government protect us, not just from terrorists, but from greed and the ravages of the too-free market as well.

I wasn’t really sure who Rep. Jay Kaufman (15th Middlesex) was (until I googled him) but I’m on his email list and I found out that he is hosting a forum on Question 1. It’s tomorrow night, Thursday, September 17 at 7:30 pm at the “historic depot on Massachusetts Ave in downtown Lexington.” As decribed in the email, this will be an in-depth look at both sides of Question 1:

from an end to overburdening policies and programs that force one to live in ‘Taxachusetts’ to the potential devastating loss of basic services if over $12 billion in revenue were suddenly stricken from the books

Kamel Jain, from the Committee on Small Government, which sponsored Question 1, and Michael Widmer, President of the Massachusetts Taxpayers Association, which opposes the measure, will join Rep. Kaufman.

So, thanks Rep. Kaufman for doing this. I’m not sure how I got on your mailing list, but I like your style. I think there should be more of these face-to-face encounters and hashing out of issues in public and apparently he makes a regular habit of hosting these public policy forums. This one could not be more timely or pertinent. Unfortunately, I can’t make it so I really hope some other bloggers attend and can report back.

After writing my post on Question 1, when I urge others not to vote “yes” in a knee-jerk reaction to the whole idea of taxes, it occurred to me that I could be accused of the same thing in my support for the income tax and the idea of taxes in general. My position is that taxes pay for what we need as a society, for civilization – good schools, police protection, fire safety, sidewalks, clean streets and a social safety net that protects all of us in case of hard times. In each case, it would be much less cost-effective and efficient to take care of these issues on our own. Spreading the cost among many achieves economies of scale that the individual cannot command. As for tax cuts fueling economic growth, that pipe-dream just won’t die. The Libertarian-backed group behind Question 1 (in 2002 and 2008) gives the usual reasons reasons to get rid of the Income Tax, they state:

3. In productive, private hands this $11 Billion a year will create hundreds of thousands of new jobs in Massachusetts.

As it happens, an article in the Sunday Globe Ideas section addressed this very idea, saying that while the belief that big government and taxes stifle economic growth is widely held, there is no hard evidence to support it. Recent studies by mainstream economists seem to show just the opposite is true, and that government interventions and programs have been ‘vital contributors to growth’ through investments in the railroads, land purchases, R&D, and more. Currently, the author concludes, the lack of belief in government (think New Orleans after Hurricane Katrina for the end result of that kind of thinking) has stymied the kind of investments that need to be made in infrastructure, healthcare and education. He concludes:

a nation steeped in antigovernment economics, the idea that government cannot be of help – or that taxes are not worth paying – is now seriously jeopardizing its future. There is no rich nation in the world today, including America, that has grown wealthy without significant government involvement. And there will be no rich nation in the future that can stay wealthy without robust government, either.

There are only 57 days until the election, and while the national contest is riveting all eyes, let’s not forget that an important and potentially damaging referendum is on the ballot in our own state. Question 1, if passed, will repeal the State income tax. This seems ludicrous, given the fiscal crisis underway in many cities and towns, but it’s true. The last time this question was on the ballot was 2002, and it came close to passing with 45% of the vote. Now, times are tough and there is a fear that things might get even worse before we see improvement. People might be inclined to vote for Question 1, and get some short-term relief from higher gas and food prices. Even though the tax burden has declined in Massachusetts (see “Taxachusetts No More”), anit-tax sentiment is still high, and saying “no” to taxes is a knee-jerk reaction for many voters as well as politicians. But, as Governor Patrick said yesterday, “the services people say they want cost something.” This proposal will eliminate 40% (more than $12 billion) of the State’s revenues and will most certainly reduce local aid. Even the Republican leadership is opposing this measure which is once again sponsored by the Libertarian party, with Senator Richard Tisei (Republican, Wakefield) saying, “There are a lot of essential services we would not be able to perform….It’s too extreme.”

As students head off to college, parents should be aware of the need for them to have some degree of financial literacy. As a parent of a college student, I’ve seen the lure of easy credit dangled in front of my teen’s eyes as he routinely gets offered credit cards and tuition loans. A friend tells of freshman orientation at an out-of-state institution last year where the local banks were in the lobby, offering student checking accounts with debit cards – the fine print was certainly buried and they had no idea that automatic overdraft protection was bundled into the account. This specious “service” basically allows students to overdraw their accounts and then hits them with penalties and shockingly high interest rates. The student was home on vacation and carefully checked his balance at the ATM machine before using his debit card, little realizing that he was being charged a few dollars each time he checked, further whittling away at his available funds. Within a few weeks, he got a phone call from the bank about the $120 in fees and penalties owed to them! So, is your college student prepared for financial independence? Is he or she ready to handle a credit card, budget expenses and live within available means? While researching this issue, I discovered that Massachusetts has launched a financial literacy program called HiFi which trains teachers, financial professionals and community members to offer financial literacy classes to teens. The one-day training workshops are free, include lunch and are eligible for Professional Development Points. I’m not sure if any Lowell teachers have taken this on, so in the meantime, here is a good guide for discussing financial habits with your children. As a conversation starter, have them take JumpStart’s Financial Literacy test and then try the Reality Check.

During the superintendent interviews, candidate Paul Schlictman made a point that I have seldom heard mentioned:  “Twenty-five percent of Lowell students are ’suburban’, that is they are on a par with or doing better than students in the wealthier suburbs.”   As an example of this, our Latin Lyceum kids rank as high as or higher than students from wealthy suburban schools, and we have students from Lowell High that go on to Harvard, Yale, MIT and other highly-selective institutions.  So, as we on the CPC have been saying for years – the problem is not that the schools are not doing their job.  It is that the problems the kids bring with them to school are often too overwhelming to be conquered in a 6-hour day.  Yesterday’s Sunday Globe, Ideas section, had a provocative article on the status of Ed Reform as it applies to high-poverty schools.  Paul Reville, incoming secretary of education, is quoted in the article as saying that the original goal of the legislation was ‘to eradicate the correlation between socioeconomic status and educational attainment.”  He adds: “We’d have to say we’ve failed on that.”

There are success stories though, and the article goes on to describe several schools that have succeeded in narrowing the achievement gap; all have used similar methods, the most important being extending the school day. Other methods for boosting student achievement include: “extensive tutoring, giving schools wide latitude over teacher hiring, and setting high expectations for all students, regardless of the hurdles put in place by their tough backgrounds.”  

Are we doing enough in Lowell?  Well, extended day never got off the ground here, despite available funding from the state to make it happen.  In addition, and most discouragingly, we continue to cut the budget year after year.  Where we have applied resources, such as reading interventions and math ability groupings, we have seen results.  The question is, can we do more, and can we possibly continue to see improvements in this fiscal climate?

These tips were emailed to me by someone with 30 years experience in the petroleum industry. No more letting my tank get to empty again! Read on for details:  Buy gas in the early morning when the ground temperature is still cold. The colder the ground, the denser the gasoline; when it gets warmer, gasoline expands, so buying later in the day, your gallon is not exactly a gallon. Also, when you’re filling up, do not squeeze the trigger of the nozzle to a fast mode. In slow mode you should be pumping on low speed, thereby minimizing the vapors that are created.  One of the most important tips is to fill up before you get below the halfway mark. The more gas you have in your tank, the less air is occupying its empty space, and gasoline evaporates fast. And one final reminder, DO NOT fill up if there is a gasoline truck pumping into the storage tanks–most likely the gasoline is being stirred up as the gas is being delivered, and you might pick up some of the dirt that normally settles on the bottom.

School committee member Dave Conway made a motion last night to create a Council for Creative Solutions, which would be charged with analyzing and determining the feasibility of cost-saving ideas submitted by school department employees, with a potential for such employees to receive bonuses for successful submissions.  I’m not sure if Mr. Conway reads The New Yorker or not, but in the May 12^th issue James Surowiecki describes the phenomenal success of Toyota, which has recently surpassed GM in car sales, and ascribes their long term profitability to a similar program of employee-driven change.  Here’s how they do it:

Toyota implements a million new ideas a year, and most of them come from ordinary workers.  Most of these ideas are small – making parts on a shelf easier to reach, say – and not all of them work.  But cumulatively, every day, Toyota knows a little more, and does things a little better, than it did the day before. 

Toyota’s changes and innovations result from a relentless focus on incremental improvements in process, rather than product.  Their methods are no secret, and many companies have tried to copy them, but the prevailing cultural mentality of expecting innovation to be dramatic and exciting, which Surowieki likens to crash-dieting as opposed to sensible eating, causes them to abandon such mundane efforts early on.  In addition, as Surowieki points out, most companies (and, I would argue, school districts) are still organized in a very top-down manner, and have a hard time handing responsibility to front-line workers. 

It does sometimes seem that school districts are always ready to put money into a new theory or program, scrapping previous efforts and jumping on the latest bandwagon, like dieters who go from one faddish eating plan to another.   The wearied teachers and staff follow along because they must, but their ownership of such top-down, theory-driven plans is often lacking.  Small, grassroots initiatives may have a better chance of succeeding and may also invigorate an openness to change throughout the system.  I hope the motion passes successfully through subcommittee and is positioned to be simple and effective (do we really need another council?), and that employees and school leaders will enter into the spirit of this, not just to save money but to improve the way we do the job in our schools.  It could pay off for everyone in the long run.
 

After crafting a budget within the revenue guidelines set by the city, which required a less than one percent increase and the elimination of 60 positions, the Lowell School Committee voted last night to send the manager a list of 10 priority teaching positions to fully or partially restore if additional funds are made available. (Related Sun article here.) The restorations, as the list below indicates, are for teaching positions in core areas such as math, reading, and English-language instruction. Restoring all 10 positions will cost $550,000—not an easy ask given the current fiscal environment. But we can’t afford NOT to do it when the ultimate price may be a serious decline in student achievement. For example, in our latest MCAS results from 2007, 14% more Lowell sixth graders scored advanced/proficient in math and 15% less scored in the warning category. Three of those priority positions directly impact middle-school math instruction. Also, four of the positions are to restore elementary reading teachers at state-labeled Commonwealth Priority Schools—those schools that have not made Adequate Yearly Progress (AYP) on MCAS. In yet another case of unfunded government mandates, these schools are judged on student performance without being provided the resources to meet their students’ needs. Worth noting: Last year, of the five largest districts in the state, Lowell had the highest percentage of schools making AYP in English, and the second highest for AYP in math. We’re making progress and Lowell is one of the state’s most successful large urban districts, but we still have a long way to go. We will not get there by constantly cutting positions—360 since 2002. The only way to improve our schools is to make educating our children a priority, which right now means funding the priority list. To see the list, check: more »