StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



The Andrew Samwick Archives

Posted by Andrew Samwick

Via the AP, it seems that thrift is finally catching on in the Under-20 crowd:

NEW YORK - The souring job market and rising costs of the usual teenage indulgences - a slice of pizza, a drive to the mall, the hottest new jeans - are causing teens to do something they rarely do: be thrifty.

It's a far cry from the freewheeling spending of recent years, when teens splurged on $100 Coach wristlet handbags, $60 Juicy Couture T-shirts, and $80 skinny jeans from Abercrombie & Fitch.

Now jobs for teens are less plentiful, and parents who supply allowances are feeling the economic pinch.

Stalwart retailers of teen apparel, such as Abercrombie and American Eagle Outfitters Inc., are reporting sluggish sales, defying the myth that teen spending is recession-proof.

It's even becoming cool to be frugal.

Better late than never, I suppose.  Read the whole thing for examples of how teens are tightening their designer belts.

Posted by Andrew Samwick

Don't even bother.  From today's local paper:

Piermont -- Fifteen years after starting their dairy farm above the Connecticut River, Lisa Knapton and Hal Covert milk 104 cows every day with the help of one hired hand. Life at Moonstruck Farm has not been easy, but along the way, Knapton and Covert have had some help: The couple received about $360,000 in federal farm subsidies from 1995 through 2006.

Much of it helped offset low milk prices and fund construction of the Piermont farm's environmentally friendly manure pit, boosts for Knapton and Covert as they faced the challenges of Northern New England's dwindling dairy industry. But a substantial portion was money the couple never asked for -- and that Knapton says they didn't deserve.

That's Rich

18 Apr 2008
Posted by Andrew Samwick

Quite literally. Here's Alpha Magazine's list of the ten hedge fund managers with the highest personal earnings in 2007:

Rank Name Firm Name 2007 Earnings*
1 John Paulson Paulson & Co. $3.7 billion
2 George Soros Soros Fund Management $2.9 billion
3 James Simons Renaissance Technologies $2.8 billion
4 Philip Falcone Harbinger Capital Partners $1.7 billion
5 Kenneth Griffin Citadel Investment Group $1.5 billion
6 Steven Cohen SAC Capital Advisors $900 million
7 Timothy Barakett Atticus Capital $750 million
8 Stephen Mandel Jr. Lone Pine Capital $710 million
9 John Griffin Blue Ridge Capital $625 million
10 O. Andreas Halvorsen Viking Global Investors $520 million

*Earnings include managers' shares of fees as well as gains on their own capital.

So how did they do it? This article in The Washington Post explains:

Posted by Andrew Samwick

Yesterday, the Treasury released its fourth in a series of issue briefs on reforming Social Security.  As the title indicates, this one was focused on making sure that Social Security surpluses are used to increase the ability of future generations of taxpayers to support the benefits claimed by future retirees.  It uses the LMS plan as an illustration and emphasizes the constructive role that personal accounts can play in safeguarding Social Security funds for Social Security benefits.

Here's an excerpt of the discussion about pre-funding future benefits, with my emphasis added:

Posted by Andrew Samwick

The surprising thing about the Delta/Northwest merger announcement is the statements about not closing any hubs.  As this New York Times article points out, the merger will be strongly opposed by the pilots of at least one of the carriers (Northwest).  The issue is seniority, which determines which pilots get to fly which routes on which planes.  I am hard pressed to think of why this would really be an issue if there weren't expected to be big reductions in the amount of flights in the newly combined airline.  (If all planes continued to fly to roughly the same cities, then very few flight assignments would have to change in substantive ways.)

Posted by Andrew Samwick

I've been on the road this week for the Samwick family sorta-annual trip to the Bay area. The trip out here, originally scheduled for a Boston to San Francisco nonstop, would read like one of those Fortunately/Unfortunately stories we remember from childhood. It is amazing that the airline industry survives in any form with fuel costs as high as they are and fares as low as they are.

Let's run the numbers:

4 seats x 2700 miles/segment x 2 segments = 21600 seat-miles

21600 seat-miles / 60 seat miles per gallon (here or here) = 360 gallons

360 gallons x $2.60 per gallon (here) = $936

Posted by Andrew Samwick
I think we have our first CG&G gentlemen's bet. I agree with Stan that Clinton or Obama will run as VP if asked. That's why I think neither will be asked in a public enough way to force acceptance. I think there has already been too much animosity (which will only continue to grow). Beyond that, I don't think that the electoral advantages here are all that large.

Confusion in Schools

11 Apr 2008
Posted by Andrew Samwick

This has been a dispiriting week for observers of public schools across the nation.  It seems like a few things need to be cleared up.

  1. The parents of these kids need to start shopping for school supplies in a different part of the Wal-Mart.
  2. The sign on the door of this class should say Art, not Martial Arts.  Apparently, it was just one of several such incidents.

I'm just saying.

Posted by Andrew Samwick

Via the Real Time Economics blog, Daniel Gross makes the point from my recent post on the profligate vs. the prudent better than I did in his Moneybox column on Monday, "A Tax Break for Bubble Heads."  His vehicle is the legislation moving through Congress to provide tax breaks and assistance to the housing industry.  Here's the key excerpt:

Posted by Andrew Samwick

Stan doesn't think his "Fiscal Fitness" column was choreographed to coincide with the Hubbard/Cogan op-ed in today's Wall Street Journal.  But a smart guy like Stan can always rely on a ready foil on the WSJ editorial page.

I object to many parts of the op-ed, but two in particular. 

Posted by Andrew Samwick

I agree with much of Stan's post on the vanishing role of personal responsibility.  But there are people out there, maybe you know some, who have been trying to behave responsibly with their finances.  They didn't enter into a mortgage contract for a house they couldn't afford.  They didn't speculate wildly to buy financial assets based on dubious promises.  What has been their experience?

Posted by Andrew Samwick

Troy posted a link to the video of the CRFB dinner's panel discussion on "Are Fiscally Responsible Elections Possible?"  From the lineup, you might have expected this to get interesting.  Mark Halperin was the moderator.  There were two former OMB directors in Leon Panetta (Clinton) and James Miller (Reagan).  There were economic advisors from the three remaining Presidential candidates in Gene Sperling (Clinton), Jeff Liebman (Obama), and Doug Holtz-Eakin (McCain). 

Things did get interesting around the 33 minute mark, when Miller started peddling supply-side gibberish.

Posted by Andrew Samwick

I enjoyed Stan's account of the CRFB annual dinner and the opportunity to assemble as the full CG&G team.  I'll have one thing to add on the dinner in a later post.  Since I was making the trip from the frozen tundra of New Hampshire, I made a day of it and attended the roundtable on the economy, financial markets, and the budget that preceded the dinner.  For my part, I contributed the following to the discussion:

First, I asked the question, "Who are the Bear Stearns creditors and why is it so important [that it requires Central Bank intervention] that they be paid?"  They invested and it turns out that they lost.  They might have a case in court, but why do they have a special claim on the federal government?  I don't believe they do, and nothing I heard convinced me otherwise.

Posted by Andrew Samwick

I agree with my partners in crime--Congress and the President should be able to conduct responsible budget policies even without putting any of it on autopilot.  But they don't conduct responsible budget policies, and, more importantly, we don't hold them accountable for this at election time, and so I think some type of automatic trigger could work. 

Sustainable Solvency

02 Apr 2008
Posted by Andrew Samwick

Stan wonders what sustainable means in the context of long-term entitlement reforms.  We could start (and probably end) with the definition of "sustainable solvency" in the 2008 Social Security Trustees Report:

When a program has positive trust fund ratios throughout the 75-year projec­tion period and these ratios are stable or rising at the end of the period, the program financing is said to achieve sustainable solvency.

Posted by Andrew Samwick

Via the Real Time Economics blog, here is a link to a paper by the Brookings-Heritage Fiscal Seminar that recommends that: 

  • Congress and the president enact explicit long-term budgets for Medicare, Medicaid, and Social Security that are sustainable, set limits on automatic spending growth, and reduce the relatively favorable budgetary treatment of these programs compared with other types of expenditures.
  • The programs be reviewed on a regular schedule by the Social Security and Medicare Trustees or the Congressional Budget Office to determine whether they will remain within budgeted amounts.
  • Significant long-term deviations from budgeted amounts trigger automatic adjustments in benefits, premiums, provider payments, or other revenues. These adjustments could only be over-ridden by an explicit vote of Congress and acceptance by the president.
Posted by Andrew Samwick

... is apparently Louisiana, as Governor Jindal receives high praise from the Times Picayune's editorial board.

The Legislature begins Monday a three-month regular session that provides a chance to continue pushing for reforms, this time on issues ranging from fiscal policy to workforce training.

Lawmakers need to make the most of the opportunity.

The session's centerpiece is Gov. Bobby Jindal's $30 billion inaugural budget. The details are still being worked out, as individual departments take their funding requests through the legislative hearing process. But the broad policies in the governor's first spending plan are encouraging.

Posted by Andrew Samwick

I thought that Eduardo Porter's editorial in The New York Times today was relevant to our discussion of education finance. His thesis:

[R]acial and ethnic diversity undermine support for public investment in social welfare. For all the appeal of America’s melting pot, the country’s diverse ethnic mix is one main reason for entrenched opposition to public spending on the public good.

He cites a number of studies to support this thesis.  His conclusion is of the form that we should overcome the challenge:

Posted by Andrew Samwick

Stan asks, "Why shouldn't there be a market for public education?" and motivates his question with an interesting article from The Washington Post.  I would rephrase the question as I have done in the title and try to answer it as follows.

Posted by Andrew Samwick

Paul Krugman correctly points out the flaws with an argument of the form, "there is no trust fund, so the system will be in crisis in 2017."  But his response is not a good argument against reforming the system now.



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