Archive for November 2010

You get what you pay for.

November 18, 2010

Today, in the Wall Street Journal, Burton G. Malkiel, Princeton economics professor, in an op ed piece, “Buy and Hold” is Still a Winner, writes:

The one investment principle about which I am absolutely sure is that the less I pay to the purveyor of an investment service, the more there will be for me. As Jack Bogle, founder of the Vanguard Group, says: “In the investment fund business, you get what you don’t pay for.

Today in the New York Times, Uwe Reinhardt, Princeton economics professor, in an occasional piece, Why I Would Raise Taxes, from the Economix Blog writes:

Douglas Elmendorf, director of the Congressional Budget Office, put it succinctly: “The United States faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits to older Americans, and the tax revenues that people are willing to send to the government to finance those services.”
In our fiscal policy, we should turn around the saying “you get what you pay for” and make it “you should pay for what you get.”

How about this variation, —too often you get what someone else pays for,  —to start with your parents, and thereafter in too many instances the government through taxation.

What ever happened to, ‘you pay as you go.’ We seem to have lost sight of that one, and more and more we go without paying.

Daniel Greenberg, Free At Last

November 12, 2010

I call what follows a “Guest Blog.” It’s taken from my own history, at a time in my own past when Daniel Greenberg was someone of huge significance in my own life, and no less so in the thinking that went into our own school. The passaage is taken with a very few stylistic changes directly from Daniel Greenberg’s 1991 book, Free At Last.

Every year in early June John came to school to chat with me about his son. John was a gentle, intelligent man, warmly supportive of his son Dan, who attended the school. But John was also worried. Just a little. Just enough to come once a year for reassurance.

Here’s how the conversation would go.

John: “I know the school’s philosophy. and l understand it. But l have to talk to you. I’m worried.”
Me: “What’s the problem?” (Of course, I knew. We both knew. This is a ritual, because we both say the same thing every year, five years in a row.)

John: “All Dan does at school all day long is fish.”
Me: “What’s the problem?”

John: “All day, every day, Fall, Winter, Spring. All he does is fish.”
I look at him and wait for the next sentence. That one will be my cue. John: “I’m worried that he won’t learn anything. He’ll find himself grown up and he won’t know a thing.”

At this point would come my little speech, which is what he had come to hear. It’s all right, I would begin, Dan has learned a lot. First of all, he’s become an expert at fishing. He knows more about fish —their species, their habitats, their behavior, their biology, their likes and dislikes—than anyone I know, certainly anyone his age. Maybe he’ll be a great fisherman. Mavbe he’ll write the next “Compleat Angler” when he grows up.

When I reached this part of my spiel, John would be a little uncomfortable. A snob he wasn’t But the picture of his son as a leading authority on fishing somehow didn’t seem believable.

I continued, warming up to my subject. Mostly, I would say, Dan has learned other things. He has learned how to grab hold of a subject and not let go. He has learned to value the freedom to pursue his real interests however intensely he wants, and wherever they lead him. And he has learned how to be happy. In fact, Dan was the happiest kid at school. His face was always smiling; so was his heart. Everyone, young and old, boys and girls, loved Dan.

Now my talk came to its close.
“No one can lake these things away from him,” I said. “Someday, some year, if he loses interest in fishing, he’ll put the same effort into some other pursuit. Don’t worry.”

John would get up, thank me warmly, and leave. Until next year. His wife Dawn never accompanied him. She was happy with Sudbury Valley because she had a child who radiated joy. Then one year John did not come in for our annual chat. Dan had stopped fishing.

At fifteen, Dan had fallen in love with computers. By the age of sixteen, he was working as a service expert for a local firm. By seventeen, he and two friends had established their own successful company in computer sales and service. By eighteen, he had completed school and gone on to study computers in college. He had saved enough money for his tuition and expenses. Throughout his years at college he was employed as a valued expert at Honeywell. Dan never forgot what he learned in his many years of fishing.

Many people have written volumes about the wonders and beauties of fishing. We have seen it for ourselves at the school. Kids love to fish. It is relaxing and challenging. It is outdoors, rain or shine. Standing on the bank of the school’s millpond, you are surrounded by the rustling trees, the soft grey granite buildings, the rushing stream under the mill dam. Most of the kids who fish see the beauty. All of them feel it.

Fishing is social. They fish with friends, or learn from their elders. Every year we see a new generation of five and six year olds struggling to learn the ropes. Fishing can also be asocial. You can be alone, if you want to. No one will bother you. It’s the code. Often someone will go out for a day with a rod and reel just to be alone, to think, to meditate. As if Fishing, in a quiet way, were an important part of life at school. I often wonder at how lucky we were to find a campus with a pond.

My experience with Dan and John happened in the early days of the school. It made me think about the school and what it means. So I was completely comfortable when my youngest son started to fish all day long. It was déjà vu. And I knew that he knew what he was doing.

(Daniel Greenberg, is a founder of the Sudbury Valley School in Framingham, Massachusetts)

Then Sakharov and Korolev, now Khodorkovsky

November 9, 2010

“Я совсем не идеальный человек, но я — человек идеи. Мне, как и любому, тяжело жить в тюрьме, и не хочется здесь умереть. Но если потребуется — у меня не будет колебаний. Моя Вера стоит моей жизни. Думаю, я это доказал.”  (М.Б. Ходорковский, 2 ноября 2010)

Stalin’s Russia didn’t allow its internal opponents to speak publicly. Instead these were mostly confined to the Gulag, and/or simply executed. Khrushchev, Brezhnev, and then later in the 1980s, Mikhail Gorbachev, just prior to the fall of Soviet Russia in 1991, did allow, although never willingly, their internal opponents to speak publicly, with the result that we had dissidents Andrei Sakharov, Aleksandr Solzhenitsyn and many others.

Perhaps to some degree, however small, the demise of the Soviet Russia may be attributed to these men who were able to speak out and make themselves heard. Now in Putin’s Russia, in too many ways no less authoritarian than the Soviet Union under Brezhnev, we have the jailed  for fraud and corruption Mikhail Khodorkovsky, speaking out from his Siberian prison, from what he calls “gulag lite” in the town of Krasnokamensk near Chita.

Was he guilty? Did he deserve a sentence of nine years? I don’t know. But regardless of what he was before, the honest or the corrupt billionaire head of Yukos, Russia’s largest oil company at the time, Khodorkovsky is now becoming the voice of what might have been, and perhaps still could be, a democratic, law-abiding country taking its rightful place in a liberal and democratic Europe.

Just recently, at the conclusion of his second trial in Moscow (the result of which will not be known until December), he was allowed to make a public statement, and it was this that first got my attention.

I sometimes think of all the words, the worlds that might have been, all that has been lost, by the fact of Stalin’s inhumanity. Stalin silenced probably the best and the brightest of the Russia of the thirties, by the simple fact of having them executed, perhaps in a dark basement room of the Lubyanka, and by not allowing any statements they may have made prior to their deaths to become public.

Perhaps the very best thing we can say about Vladimir Putin and his man Dmitry Medvedev is that so far they have not silenced Khodorkovsky, but have allowed his voice to be heard, if only from captivity. (Although publications, including the Moscow Esquire and the Novaya Gazeta, that have printed his words have been been just recently “visited” by the government’s security services.)

Here are a few small pieces of that voice, taken from Khodorkovsky’s statement at the conclusion of the most recent trial. For the Russian text of this statement go here.

I remember the end of the ’80s of the last century.  I was 25 then.  Our country was living on hope of freedom, hope that we would be able to achieve happiness for ourselves and for our children.

We lived on this hope.  In some ways, it did materialize, — in others it did not.  The responsibility for why this hope was not realized all the way, and not for everybody, probably lies on our entire generation, myself included.

With the coming of a new President (and more than two years have already passed since that time), hope appeared once again for many of my fellow citizens too.  Hope that Russia would yet become a modern country with a developed civil society.  Free from the arbitrary behavior of officials, free from corruption, free from unfairness and lawlessness.

… what the country needs is not one Korolev, and not one Sakharov under the protective wing of the all-powerful Beria and his million-strong armed host, but hundreds of thousands of “korolevs” and “sakharovs”, under the protection of fair and comprehensible laws and independent courts, which will give these laws life, and not just a place on a dusty shelf, as they did in their day – with the Constitution of 1937.

Where are these “korolevs” and “sakharovs” today?  Have they left the country?  Are they preparing to leave?  Have they once again gone off into internal emigration?  Or taken cover amongst the grey bureaucrats in order not to fall under the steamroller of “the system”?

We can and must change this.

“I am not at all an ideal person, but I am a person of an idea. For me, as for anybody, it is hard to live in jail, and I do not want to die there. But if I have to, I will not hesitate. The things I believe in are worth dying for. I think I have proven this.”

And I was no less struck by the earlier interview Khodorkovsky had given to the newspaper, Novaya Gazeta. In particular I was struck by how much of what he said there might be well applied to some of the issues and problems that we are facing in our country right now, and in respect to which we seem unable, quite like the Russian Duma of which Khodorkovsky speaks, to take corrective action.

At one point the interviewer asks a series of questions: What are the key political, economic and social challenges that Russia’s president will face in 2012? How long will the system last without political and economic competition? What candidate would you support and do you see a chance for a real alternative political force to emerge?

And here is Khodorkovsky’s reply with the accompanying Russian text following the English translation:

The key challenges for whoever will be elected president in 2012 will stem from the escalating gap between the imminently declining potential and growing risks in the still backwards economy, plus bureaucratic greed and voter expectations.

Ходорковский: Ключевые вызовы для человека, избранного президентом в 2012 году? Нарастающее противоречие между снижением потенциала немодернизированной экономики — с одной стороны, алчностью бюрократии — с другой, и ожиданиями населения — с третьей.

The Russian economy cannot be retooled under the current government system, which is inefficient, obsolete and thoroughly corrupt. Russia, for a plethora of reasons, will be engulfed in yet another crisis around 2015.

Невозможность модернизации экономики определяется, в свою очередь, неэффективной системой государственного управления с ее архаичностью и тотальной коррумпированностью. По многим причинам очередная кризисная точка придется где-то на 2015 год.

The list of problems is long. Here they are in no particular order:

Список проблем длинный. Среди них (не в порядке важности):

The utterly exhausted potential to sustain our raw-material funded growth. In other words, we will not be able to produce more, while prices will no longer support any sufficient revenue growth.

— исчерпанность потенциала сырьевого роста. То есть и добывать больше не сможем, и цены больше не дадут необходимого прироста доходов;

A steady decline in the working population.

— непрерывное сокращение доли активного (работающего) населения;

A steady expansion of security agencies and government bureaucracy, or, in other words, those who are part of the working population that not only don’t create wealth, but also redistribute it for their own benefit.

— непрерывный рост численности силовиков и бюрократии, то есть той части работающего населения, которая не только сама не создает продукцию, но и перераспределяет ее в свою пользу;

Very slow growth in labour production, because managers’ performance is gauged against quite different criteria.

— крайне медленный рост производительности труда, поскольку не она сегодня — действительный критерий успешности управленцев;

Lack of an industry development strategy, (everybody has already forgotten about the focus growth sectors put forward by the President) seeing as how huge resources are being pumped into hopeless projects aiming to compete with China and, in the future, with India in sectors where these countries have obvious competitive advantages, such as cheap labour.

— отсутствие промышленной политики (про основные направления, выдвинутые президентом, уже все забыли) в результате вбабахивания сил и средств в обреченные на неудачу проекты, направленные на конкуренцию с Китаем и, в будущем, с Индией в тех областях, где эти страны имеют очевидные конкурентные преимущества (например, дешевизна рабочей силы).

So, the next president will face a simple choice: either the working population will have to produce more or the rest will have to consume less.

В общем, для будущего президента выбор прост: либо работающее население больше производит, либо остальная часть — меньше потребляет.

The equation is even simpler for the “rest”: the more bureaucracy consumes, the less is left for the others. And vice versa.

А внутри остальной части — еще проще: если больше потребляет бюрократия, значит, меньше — все остальные. И наобо рот.

Putting pressure on producers won’t work. They will pack things up and leave. They are already leaving.

Давить производителя не выйдет. Сбегут. Уже бегут.

You want my prediction? Our elite will not wake up until things get really bad. All the president’s attempts to make quick fixes here and there will be sabotaged. And he won’t have the nerve to make institutional reforms.

Хотите мое предсказание? Пока гром не грянет — наша элита не перекрестится. На все президентские попытки частных изменений ответом будет саботаж. На институциональные изменения  решимости не хватит.

This will lead to:
Rising prices, tariffs and utility bills;
Declining quantity and quality of free healthcare and education services;
Increasing pension age and devaluation of welfare benefits;
Creating a non-competitive third-wave production capacity
.

Значит, рост цен, тарифов, коммунальных платежей; сокращение фактического перечня и качества бесплатных услуг в медицине и образовании; повышение пенсионного возраста, обесценивание социальных выплат; создание неконкурентоспособных промышленных мощностей третьей технологической волны.

How much of what he says here might be applied to our own country? I think of these words:  So, the …president will face a simple choice: either the working population will have to produce more or the rest will have to consume less….The equation is even simpler for the “rest”: the more bureaucracy consumes, the less is left for the others.

Where is this wise and good man now? Well, he was here (A), as indicated on the map below, at Krasnokamensk near Chita. Now he’s in a prison near Moscow. If he’s sentenced to an additional 8-12 years he will probably be returned to his “gulag lite” at Krasnokamensk in Siberia.


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