Trying to beat the odds

Here is the most recent SPIVA (Standard and Poor’s Indexes Versus Active) report. The report examines what percentage of managed funds failed to beat the index of their category over trailing periods of up to five years.  The most recent results show:

For the three years ended March 2013, 16.57% of large-cap funds, 14.22% of mid-cap funds and 23.05% of small-cap funds maintained a top-half ranking over three consecutive 12-month periods. Random expectations would suggest a rate of 25%.
Looking at longer-term performance, only 2.41% of large-cap funds, 3.21% of mid-cap funds and 4.65% of small-cap funds maintained a top-half performance over five consecutive 12-month periods. Random expectations would suggest a repeat rate of 6.25%.
While top-quartile and top-half repeat rates have been at or below the levels one expects based on chance, there is consistency in the death rate of bottom-quartile funds. Across all market cap categories and all periods studied, fourth-quartile funds had a much higher rate of being merged and liquidated.

Of course the under-performance of active funds isn’t news.  The failure of professional management has been well researched and well documented for over a half century.   But for those that believe in the (at least relative) efficiency of markets it does generate a paradox: how can we explain the existence of a large financial services industry largely dedicated to doing the impossible (consistently predicting the future)?  You could argue that there are Tarot Card readers, psychics, chiropractors, etc. who manage to earn a living perhaps relying on overly trusting and unsophisticated consumers.  But maybe a more useful comparison for the Wall Street casino might best be with actual Vegas-type casinos.  People love to gamble and rationally do so even though they know the expected odds of beating the house are very low indeed.   So is paying a premium for a professional money manager to handle your retirement account the equivalent to betting the hot roller can keep up the run of sevens? Do you have any other suggestions?

Government welfare lets businesses grab taxpayer money

Many people naively believe that government welfare programs are solely about alleviating poverty. In fact, these programs have more to do with vote buying and subsidization of politically connected businesses and industries. The food stamp program, for instance, exists largely to benefit the U.S. agricultural industry by increasing the demand for food. That explains why Congress passed a law making it illegal to use food stamps to purchase imported food. And any attempt to curtail or eliminate food stamps or welfare would probably meet with strong opposition from J.P. Morgan Chase, which does a very lucrative business in processing the swipe card transactions.

Likewise, the 2,300 pages of Obamacare legislation were authored behind closed doors, in consultation with lobbyists from the medical and insurance industries. The legislation is intended to benefit primarily those particular industries, even if it means that young people and people of modest income will be forced to purchase health insurance that they don’t want, or pay a fine.

Consider also the federal government’s program to “weatherize” the homes of “poor” people, a misguided and moribund program that originated back during the government-caused energy crisis of the 1970s, but which was revived by the Obama ‘stimulus’ of 2009. A recent investigation reveals that the primary beneficiaries of this program are not the poor.

The Delaware News Journal reported last week that much of the costs for the low-income housing program stemmed from paying contractors to do simple, inexpensive fixes — like insulating attics or sealing gaps — but who instead went the path of replacing furnaces, windows and doors, all at a much greater cost. Much of the work was authorized by an administrator and a contractor, neither of whom is still employed with the state program, the newspaper reported.

“The cash grab that went on was just amazing,” Allen Luzak, a weatherization expert with the Delaware Energy Office told the newspaper.

So far, only 689 homes have been retrofitted while roughly 6,000 families are on the waiting list for help. The attorney general’s office has been investigating the program for the past year but hasn’t filed criminal charges yet, spokesman Jason Miller told the newspaper.

This program seems to have failed to do much for the poor, but it does do a good job of subsidizing the contractors, and from the point of view of the contractors, and perhaps also of the other political actors involved, that makes the program a success.

Finally, consider yet another corrupt and socially corrupting government giveaway program–the Obamaphone–which provides the “poor” with cellphones and phone minutes. This is another foolish program that has been around for decades but which only recently has exploded in size. In just four years, from 2008 to 2012, spending on phone giveaways nearly tripled from about $800 million to $2.2 billion. The problem is that the program is rife with abuse, and many people are getting phones who are not poor and should not qualify for the program. A recent FCC audit found that 41% of recipients “either couldn’t demonstrate their eligibility or didn’t respond to requests for certification.” The program now enrolls an astonishing 14 million people.

The folks at the FCC announced last year that they were going to enhance enforcement of eligibility requirements and crack down on fraud. Jillian Kay Melchior of National Review, however, showed how easy it still is to obtain an Obamaphone. Melchior submitted applications in New York to obtain a phone for herself, even though she is gainfully employed, not poor, and plainly fails to meet the eligibility criteria.

I was able to apply on the street for one SafeLink phone and seven Assurance phones. I received one SafeLink phone and two Assurance phones, no questions asked. For several other applications, Assurance sent me requests for more financial information.

Finally, I received one other letter, full of grammatical errors, informing me that “there is already an Assurance Wireless account established at this address” and requesting further information about my application. I find it curious that Assurance caught a duplicate only once, considering that I’ve got seven entries in their system, and that they have on file my name, address, HRA case number, and, in some instances, photos of my insurance card and driver’s license. SafeLink was slightly better about catching duplications on the street, but it still gave me a phone when it shouldn’t have.

The wireless companies seem very keen to give out the phones, and not too concerned about preventing fraud. Guess why?

Representative Tim Griffin (R., Ark.) has long opposed the Lifeline wireless subsidies, making it a pet cause…“I saw all the horror stories of people getting 10, 20, 30, 40 phones,” Griffin says, “the [wireless] companies not paying a lot of attention and in some cases no attention to who was getting them and whether they were getting duplicates.”

And if you’ve been wondering why the companies are so eager to hand out free phones, the incentive is built into the program. As Griffin explains, “Of course, the way the program was set up, [wireless companies] were getting money for every one they could give out, so they gave out as many as they could.”

This company to which Melchior refers–SafeLink–is owned by Mexican billionaire Carlos Slim, one of the richest men in the world. Slim also owns TracPhone, a “prepaid service provider” that

longs to cut the “Obama phone” line of attacks to save a program for the poor — and its bottom line. The company…has launched a lobbying ground war to promote the controversial phone subsidy…The company, which spent $640,000 on lobbying efforts last year, just brought on a fourth outside lobbyist. It has created a website to debunk myths about the program’s inception and started running weekly ads in Washington publications.

Slim’s companies must be profiting handsomely from the program, since they are apparently so keen to preserve it. And once again we see that government welfare programs are sustained by an odd “baptists and bootleggers” coalition of the underclass together with business interests. The poor seemingly do not have sufficient political clout to secure welfare on their own, but welfare becomes politically feasible if a well-placed business group also has a vested interest. Or putting it another way, the business interest cannot obtain the subsidy without the political support and/or cover that accompanies assistance to the poor. The losers, as usual, are the taxpayers and the ethic of individual responsibility that undergirds our free society.

The comment thread on the National Review article generated furious debate, with over 3,700 comments posted. A libtard calling itself “jukeboxgrad” trolled the comments by arguing that National Review was guilty of “hypocrisy” for publishing this article about a $2 billion program directed toward the poor, while allegedly ignoring $200 billion in “corporate welfare.”

Dude, the Obamaphone *is* corporate welfare!

Great Moments in Government Planning

New Jersey edition:

As Hurricane Sandy bore down on New Jersey, NJ Transit moved many of its trains to rail yards in Kearny and Hoboken — lowlands easily flooded by the hurricane’s surge. When the storm was over, $120 million worth of trains were damaged.

Ever since, NJ Transit insists it couldn’t foresee that kind of surge — despite forecasters’ warnings.

Now there’s evidence NJ Transit ignored its own emergency hurricane plan — which calls for moving trains to much higher ground to protect them from rising floodwaters.


As Sandy approached, NJ Transit moved its trains to repair yards in the Meadowlands and Hoboken. Officials say neither location ever flooded before Sandy. Nonetheless, a third of its fleet — 70 locomotives and 273 cars — were damaged.

Last week, NJ Transit released its hurricane plan, written four months before Sandy. It calls for trains to be moved to higher ground, not to lowlands where they might be overwhelmed by surging waters.

So they spend money and effort to create a plan and then fail to execute?  If any of us ever caused a $120,000,000 mistake, we wouldn’t have had a job to go back to the next day. It’s amazing that after this debacle that destroyed 1/3 of the commuter fleet in NJ to think any of them has a job. Certainly the top management responsible for the decision to move the trains into swampland should be terminated.  But hey, this is New Jersey and NJ transit like all state agencies in NJ are staffed with political hacks from top to bottom.  So there won’t be any accountability.  That’s not how they roll.

Government “help” with college costs

Rolling Stone has a nice piece on the student loan bubble.  The whole thing is worth reading but my favorite sentence is:

It’s not the cost of the loan that’s the problem, it’s the principal – the appallingly high tuition costs that have been soaring at two to three times the rate of inflation, an irrational upward trajectory eerily reminiscent of skyrocketing housing prices in the years before 2008.

Exactly!  And the main beneficiaries of these loans (aside from the government) are the American university system, which has increased the cost of a college education at multiples of the rate of inflation for decades now because of all the easy money.  So the government induced student loan bubble coupled with a bad job market, financial unsophisticated borrowers, and a university system which encourages students to take on enormous debt has led to an entire generation of middle class university students down the road to loan repayment serfdom. Kind of sounds like the sub-prime mortgage story.  What’s the common denominator?

Dysfunction Diagnosis

Bankrupt Detroit’s well documented problems with corruption, unfunded benefits and pension liabilities have gotten the bulk of the attention. But equally at fault for its fiscal demise are the city’s union and civil-service rules that hamstring efforts to make municipal services more efficient and significantly raise costs. Here is an insider’s look at the dysfunction.  This part really sticks out:

 A major expense for Detroit is the cost of lawsuits filed against the city for various alleged injuries on municipal property. At the transportation department, there were hundreds of claims arising from bus accidents alone. How many of those claims were fraudulent? How many were settled (with the cost of settlement and legal fees posted against DDOT’s budget) at unnecessarily high cost?

It was impossible to know, since the city’s law department handled all litigation and settled cases without consulting the DDOT staff. It was the law department’s policy to settle virtually all claims—which meant that the transportation department became easy prey for personal-injury lawyers bringing cases with little or no merit, costing the city millions.

In the DDOT we tried to hire our own lawyers to fight these claims. But we were blocked by city charter provisions prohibiting any city department from hiring outside counsel without the approval of the Detroit City Council. When we inquired with the mayor’s office we were told that the union representing the law department—in Detroit, even the lawyers are unionized—would block any such approval.


Meet the Food Stamp Moocher

The long-awaited Fox News special on food stamps finally aired this week. The show featured 29-year-old Jason Greenslate, a beach bum and aspiring rock musician who has no earned income, but uses food stamps to buy sushi and lobster. He appears to be living entirely at the expense of the taxpayers. We wouldn’t be surprised if, even at age 29, he still got some support from his mom, although the report did not say so. In any event, Greenslate says that he

does not want a “motherfucking job” and has “fuck no” guilt about living on $200 of what he calls “free money ” — or what the government called Supplemental Nutrition Assistance Benefits — while he avoids a job to hang out on the beach, sing and chase women.

“Wake up, go down to the beach, hang out with my friends, hit on some chicks, start drinking,” Greenslate said, describing his day to Fox News’ John Roberts in an interview for the channel’s “The Great Food Stamp Binge” hosted by Bret Baier.

“I surf everyday. It’s wonderful, man. Just get away from everything, clear your head. Get out with the boys. Have a good time.” Greenslate said.

Greenslate’s lifestyle amounts to a never-ending beach vacation, and he appears to be enjoying it immensely. But Charles Murray of the American Enterprise Institute thinks that Greenslate is a fool who is wasting his life.

“That guy is kidding himself,” Murray added. “He is passing time as pleasantly as possible right now. That’s not what constitutes a satisfying human life. The sad thing is that the whole philosophical grounding of the welfare state encourages people to think of life in terms of the picnic.”

Maybe Murray is right, but we’re not entirely sure. Check out the view of the dancing babe at 7:40. Guys who work as cubicle drones, when they look up from their desks, don’t get that same view. And most don’t get it at home either.

Question for liberal college professors: Is the government’s social justice agenda supposed to make a guy feel like a chump for having a job?


Economic Cost of Flying

Uber blogger Mark Perry presents some evidence showing that US airfares have fallen in real terms over the last ten and fifteen years.  Justin Fox argues that prices have gone up  looking at a longer period and using a largely non-comparable (and not clearly documented) data-set. However, a strong case could be made that the true cost of flying has increased due to airline delays and other unreliability problems.  Flyers are spending a lot of time in airports dealing with delayed and cancelled flights.  We know that “time is money” and that it needs to be accounted for in measuring the cost of flying.  Here is a story about how airlines are coming up with ways to make their on-time record look better.  Of course the TSA certainly plays an additional role in raising the cost of flying as well.

The Great Fire-and-Rescue Rip-off

In the township where the Yet, Freedom! chateau is located, voters last May rejected a fire levy that would have added about $270 to our annual tax bill. Supporters of the levy paid to direct mail a glossy flyer to every household in the township. The flyer argued for the levy on the grounds that township spending on fire and rescue was slightly lower than in neighboring townships. This argument, of course, does not prove that spending is too low, because it might just be that spending in the other townships is too high. In fact, that is likely the case, since spending on fire and rescue in American communities is generally far too high. Spending is too high because we have more firemen than we really need, and we pay firemen much more than we have to.

Compared to 35 years ago, dramatic improvements in technology, and a lot less cigarette smoking, mean that America has more than 40 percent fewer fires. But despite the reduction in fires, America now has about 50 percent more firemen. In other words, the number of firemen per fire has nearly tripled!

Why do we employ so many firemen? The answer can be found in a case study of the Los Angeles fire department published by LA Weekly. What has happened is that, in a classic case of “mission creep,” fire departments have transformed themselves into mobile health clinics. Fires, in fact, account for only a tiny percentage of the calls to which they respond.

In 2012, L.A. firefighters responded to 376,783 calls (plus 20,000 false alarms). Firefighters handled life-and-death dramas, rescuing hikers, treating drug ODs, cutting electricity to downed power lines.

But mostly, firefighters provided routine emergency treatment — 333,333 calls, or 88 percent, dealt with chest pains, falls, trouble breathing, heart attacks, gunshots, numb legs and so on.

Fires? Just 2 percent of LAFD’s call volume, 7,657 calls, were due to fires. Fewer than half were in homes, businesses or structures. Most of the rest were in cars, trash cans or Dumpsters.

So the primary crisis to which firefighters are trained to respond–the burning building–accounts for less than one percent of responses. The vast majority are health related, many of which are too trivial to merit an emergency response.

[P]eople use the city’s “911 as their medical care,” says Mike V., a firefighter…. A typical request: “ ’I need my blood pressure checked.’ And dispatch, because we don’t want to get sued, sends a ‘resource’ ” — a city fire crew in an ambulance. Every city firefighter has a most ridiculous house call. A ring wouldn’t come off a finger. A bloody nose. A toothache.

And it’s not just calls; like a real clinic, they even accept walk-ins!

…an overweight black guy wearing Crocs and a Purdue shirt, holding a bloody paper towel over his left hand. “Bitch cut me with a butcher knife,” says the man, as the [firemen] wash the cut, blood dripping on the floor like a leaky faucet.

“You don’t want to call the cops or anything?” one asks.

“No. I just don’t want her at my place no more. I’m done with her. She can’t keep pulling knives on me.”

The 9’s bandage up his hand. The man declines a ride to a hospital, then a firefighter takes a large tub of bleach and pours it on the ground, washing his blood away.

“I’d say someone comes in four or five times a day,” says Evans, the paramedic. “There are a few clinics around here, and a lot of people use those. But we’re primary care. We’re the first line of defense.”

Of course, many of the medical calls are legitimate emergencies, but even in these cases, the fire response is plagued with several sources of inefficiency. In some communities, like Los Angeles, the entire service is redundant, since L.A. County already runs it’s own emergency medical system.

Los Angeles County, not Los Angeles City, is tasked as the lead agency overseeing $3.5 billion in state and federal money for public health, emergency care and hospitals. L.A. County turns away no poor person, and it operates a massive ambulance service. L.A. County is, in fact, the official first line of defense for the homeless, uninsured and destitute.

Even when not redundant, the fire response is generally grossly inefficient. First, they respond to calls by sending more personnel and vehicles than needed, which suggests that departments are bloated and over-staffed. As Fred McChesney noted back in 2002,

In the Illinois township where I live, the fire department drives its trucks to accompany all medical emergency vehicles, then directs traffic around the ambulance—a task which, however valuable, seemingly does not require a hook-and-ladder.

We have noticed this ourselves in Ohio; at a restaurant, an elderly man in a wheelchair experiences chest pain, and they send the hook-and-ladder. A fender-bender on State Route 73, and they send the hook-and-ladder, an ambulance, and three police cruisers. During the fire levy debate, one citizen noted that he counted no fewer than seven official vehicles lining the street in response to a health-related call by his elderly neighbor. And every time they send the hook-and-ladder, the cost is considerable. In Washington DC, for example, every trip the fire truck makes costs $3,500.

A community in Washington state has started a pilot program that takes a seemingly more sensible approach. In response to a health call, they send only a single qualified paramedic in an SUV. (Hat tip: Marginal Revolution.)

The other source of waste is simply that, thanks to union pressure, firemen are way over-compensated.

[T]otal average compensation departmentwide in LAFD, including salaries, OT, health care and pensions, is $200,000 a year.

City firefighters are so well-compensated that they enjoy lives above L.A.’s middle class; they can afford to live in distant, large suburban homes in Orange County and Santa Barbara, often supporting four- and five-member families in which nobody else works. “If you look at a firefighter’s check, it is unbelievable and embarrassing how much money they’re making,” says a former top LAFD official. He refers to typical LAFD earnings, saying: “$160,000? Are you fucking kidding me?”

Fighting fires requires a considerable amount of skill and training. But the problem is that fighting fires is not what firefighters do. They provide mostly basic paramedic services. And as LA Weekly points out, the market compensation for non-unionized, non-firefighter, private-sector, qualified paramedics can be as little as $11 an hour, plus benefits. Asking the taxpayers to pay $200,000 for a job than can be done for closer to $30,000 is a rip-off. A lot of firefighters should be replaced by paramedics making a lot less.

We intend no disrespect for the job that firefighters do. They save lives, often at the risk of their own lives. Of the first 400 firefighters who responded to the 2001 attack on the World Trade Center, more than half did not come back alive. When everyone else is trying to flee from the building, the firefighters are storming in. For the job they do, and the courage they are asked to display, these men and women deserve the respect and gratitude of the communities they serve.

But ultimately, firefighters are paid by the taxpayer. And taxpayers have every right to insist on what President Calvin Coolidge liked to call “economy in government.”

Back in May, we opposed the township fire levy, and were glad to see it defeated.

Great Moments in Government

No, we are not making this up!


Billboards reminding Detroiters their vote is their voice are all over the city. They also mistakenly say the general election is September 2.

Apparently the Detroit City Clerk’s Office wanted the billboards updated on September 2 with the date of the general election. Clearly, the person responsible for the work got a little confused. No one caught the mistake until Clerk Janice Winfrey spotted the botched billboards and called the president of International Outdoor on Saturday, the same day the billboards were updated.