Bacon's Rebellion

Not only is the cost of a college education may be escalating without let-up, it's pretty clear that students are not getting any more for their money. A new book, co-written by University of Virginia sociology professor Josipa Roksa, paints an alarming picture of what's going on in higher education today.

In research for the book, "Academically Adrift: Limited Learning on College Campuses," Roksa and New York University sociologist Richard Arun tracked more than 2,000 students between fall 2005 and spring 2009 at 24 different colleges and universities. The colleges ranged from highly selective to less selective. Sums up a McClatchy newspaper acccount:

I hope someone in the McDonnell administration reads the Wall Street Journal. I'm getting queasier and queasier about the idea of Virginia taking on more debt. I reproduce this blog post from the Boomergeddon blog.

Financial markets have tightened their grip on sovereign debt — especially U.S. municipal debt — in the past two months. The yield on 30-year, AAA-rated general obligation bonds has soared from about 3.75% to 5.0% since late 2010 — the highest interest rates since the darkest days of the Global Financial Crisis.

The squeeze has been caused largely by the anticipated expiration of some $109 billion worth of letters of credit and similar guarantees that municipalities used as short-term financing to get them through the depths of the financial crisis. “Municipalities may be hard-pressed to come up with this money or refinance this debt,” the Wall Street Journal quoted Eric Friedland, a municipal analyst at Fitch Ratings, as saying.

Bond analysts say that the crunch could lead to some municipalities defaulting on their debt, with spillover effects to banks that backed the bonds with letters of credit. “This is one area of risk the market hasn’t focused on,” said Frederick Cannon, a banking analyst at Keefe, Bruyette & Woods.

The Journal highlighted a bond auction that proved disappointing to the New Jersey Economic Development Authority. The government agency fought to refinance a short-term, variable interest loan but had to reduce its planned $1.8 billion offering to $1.1 billion because investors were demanding higher rates. In another sign that investors are shying away from the municipal market, mutual fund giant Vanguard dropped plans to roll out three new municipal bond funds, citing market turmoil.

As investors take a closer look at state/local finances, the more disconcerted they get. I’ve prominently highlighted Meredith Whitney’s analysis in this blog (see “The Next Big Meltdown: Failed States“), in which she predicted a wave of municipal bankruptcies.

Now, it appears, New Jersey’s unfunded pension liabilities are coming under closer scrutiny. Officially, the state’s pension liabilities amount to $54 billion, writes James Freeman in an op-ed into today’s Journal. But the state optimistically assumes an 8.5% return annual return on investment. Independent estimates suggest the shortfall could be as high as $175 billion — and that doesn’t include liabilities for retiree health benefits, which could total another $67 billion. If investors start turning over the rocks of Illinois and California obligations, who knows what kind of bugs will come crawling out? Both states have been relying upon accounting gimmicks for so long, there could be all manner of unpleasant surprises.

If yields on AAA-rated debt have climbed to 5.0%, states with lousy credit ratings will find the cost of capital to be even more expensive. And it’s the states with poor credit ratings that tend to be the most dependent upon the long-term debt to begin with. Fortunately, states are restricted in their ability to fund ongoing operations through debt, so the higher interest rates will not punish state or municipal governments as much as they would hammer federal finances.

But the market is speaking, and investors clearly don’t like what they see. If enough municipal bankruptcies occur, negative sentiment could easily spread to to government obligations of all kind, including federal Treasury securities. Then the state/local problem becomes a federal problem.

With its AAA credit rating, Virginia has less to lose from higher interest rates on munis than other states. But Gov. McDonnell's plan to borrow another $3 billion for transportation funding would push the state to the outer bounds of prudence. And all for what? We haven't even seen a list of the transportation projects yet! In all probability, the money would go to projects approved by the Commonwealth Transportation Board, reflecting the priorities of the 2000s decade. But things are very different now, as I'll explain in a future post about the prospects for continued oil price hikes. We need a new set of priorities. Let's not invest $3 billion in projects of dubious value.

Gov. Bob McDonnell has just issued Executive Order #31 creating the Independent Bipartisan Advisory Commission on Redistricting. The commission is tasked with ensuring bipartisan citizen involvement in the redistricting process for General Assembly and congressional seats. Stated the governor:

Here's a less-than-pleasant quiz.

Overview: I have decided to add an unplanned segment to the Politics and the Chesapeake Bay series. I felt there were sufficient questions following the first article in the series (Pt 1) to warrant an intermediary article to answer those questions. The two big areas of interest involved the uniqueness of the Chesapeake Bay (especially as an estuary) and the forces continuing to change the bay (especially rising sea levels).

What is an estuary? It is a partly enclosed body of water with one or more rivers or streams flowing into it. Some definitions add a requirement for brackish water. The bottom line is that there is no completely accepted definition of an estuary. However, like pornography, you know it when you see it. The Chesapeake Bay is unquestionably an estuary. So are both the San Francisco Bay and the St Lawrence River. Other bodies of water, like the Gulf of Mexico, might meet the technical definition of an estuary but wouldn't qualify in my book.

Is the Chesapeake Bay unique? In many ways, yes. The Chesapeake Bay is not the largest estuary in the world. That distinction belongs to the Rio de la Plata located between Argentina and Uruguay. However, the Chesapeake is the largest estuary in the United States and is generally considered the third largest estuary in the world. Yet even these "facts" can be disputed. By surface area, the largest estuary is Rio de la Plata. By length it is the St Lawrence River. By miles of shoreline it is the Chesapeake Bay. By any measure, the Chesapeake joins a very few other aquatic marvels (such as Florida's Everglades) as one of America's most important natural wonders.

The Changing Chesapeake. Anybody who boats on the middle section of the Chesapeake Bay knows Sharp's Island Lighthouse (pictured in this post). The lighthouse sits at the intersection of the Choptank River and the main bay. It is instantly recognizable by its 20 degree tilt (caused by ice floes during particularly cold winters). The current Sharp's Island Lighthouse was not the first. The first lighthouse was built in 1837 on top of a 900 acre island which was home to a thriving agricultural community. Named Sharp's Island after the Quaker physician who once owned it, the island was a beautiful place in the mid 1800s. So beautiful that a wealthy Baltimore shoe manufacturer built a resort hotel on the island. There was only one problem - the island was rapidly sinking into the Chesapeake Bay. The isle (which measured 900 acres in the 17th century) was down to 94 acres by 1900. The island is under 9 to 12 feet of water today.

The rising tide. The water level in the Chesapeake Bay' along with the rest of the Mid-Atlantic coast' is rising at twice the rate of sea levels worldwide. This amounts to 1.3 feet per century at the mouth and 1.0 foot per century in mid-bay. That's a lot of extra water but far from enough to put a hotel that was dry in 1900 under ten feet of water today. The Chesapeake Bay has been identified as one of four anomalous areas along the U.S. East Coast that appear tectonically active. There is a down-warping of the Earth's crust called the Salisbury embayment. This embayment could certainly be the root cause of the mini-Atlantis known as Sharp's Island. However, the entire US Mid-Atlantic coast is experiencing sea level increases well beyond global averages. And the Salisbury embayment cannot be blamed for all of that!

True to form, the Richmond Times-Disgrace spent about half of its front page this morning toasting the elevation of their hometown favorite, Eric Cantor, to his new position as House Majority Leader, following the GOP rout in November elections.

The Washington Times published this column yesterday. I didn't expect much attention. But before noon, I had enjoyed my 15 minutes of fame -- in Canada. After a PostMedia wire reporter wrote a story... about me writing an op-ed... and distributed it nationally, Toronto's National Post asked to republish the piece, the director of an Ottowa think tank contacted me, and I landed two radio interviews in British Columbia. I mention all this not to brag but because I am bemused by the attention. (Unfortunately, I don't think any of the activity sold any books.) The Canadians feel very much ignored by us Yanks, and they perk up when anyone, even someone as obscure as me, has something complimentary to say.

So, why do I post this on Bacon's Rebellion. First, to share with my online friends. And second... uh, well, oh, yeah, because Canada is Virginia's largest trading partner!

Canada Is Quietly Surpassing the U.S. as the Land of Opportunity

Unless the Winter Olympics are on television or someone is clubbing baby seals, Americans don’t pay much attention to what’s happening in Canada. It’s as if we live in a house with a set of quiet, orderly neighbors on one side and a bachelor pad with drunken parties, girls in the hot tub and occasional gunshot eruptions on the other. To whom would you pay more attention?

I dare say Americans could correctly name the president of Mexico (Filipe Calderon) over the prime minister of Canada (Stephen Harper) by a margin of 5-to-1. That’s too bad. While we have every reason to fear the disorder spilling over from our increasingly lawless neighbor to the south, our well-mannered Canadian neighbors have pulled their act together. We could learn a lot from them.

Look what’s not happening in Canada. There is no real estate crisis. There is no banking crisis. There is no unemployment crisis. There is no sovereign debt crisis. Recent reports suggest that consumers are loading up too much debt, but Canada shares that problem with nearly every other country in the industrialized world.

Among the Group of Seven nations, which also include the United States, France, Japan, Germany, the United Kingdom and Italy, Canada’s economic activity has come the closest to returning to the pre-recession peak. The country has recovered three-quarters of all jobs it lost. The International Monetary Fund estimates that Canada will be the only country among the G-7 have achieved a balanced budget by 2015.

Now, instead of expanding Canada’s welfare state, the conservative government led by Mr. Harper is intent upon building the nation’s global competitiveness. Our friends in the Great White North cut their corporate tax rate to 16.5 percent on Jan. 1 and will see it drop to 15 percent next year. That compares to the current U.S. corporate tax rate of 35 percent. That will give Canada the lowest corporate tax rate among the G-7 nations and an eye-popping advantage for businesses wondering whether to locate on the U.S. or Canadian side of the border.

The last time Canadians really caught Americans’ eyes was when prime ministers such as Jean Chretien and Paul Martin, both leaders of the Liberal Party, were proving uncooperative in the realm of foreign policy. American media played up disagreements over the invasion of Iraq and Canadian participation in the American National Missile Defense Program, which made President George W. Bush look bad and confirmed the narrative that his cowboy foreign policy had alienated old friends around the world. By contrast, when Canadian soldiers became active combatants in Afghanistan, the American media showed little interest.

But that’s nothing new. Except to note how well or how poorly Canada’s national health care system was working, Americans have paid little heed to news coming out of Ottawa. The titanic effort of both Canada’s liberal and conservative parties in the 1990s and 2000s to rein in government spending largely escaped our notice. Nor did it ever occur to anyone to wonder why, with our economies so closely entwined, U.S. housing prices were busting through the roof while Canadian houses remained so sensible.

It turns out that Ottawa’s housing policies and banking regulations tempered the boom in real estate prices. No tax deductions for mortgage interest payments. And get this: Buyers actually had to make down payments on their houses. Because there was no real estate bust, there was no banking crisis. (Indeed, healthy Canadian banks are snapping up U.S. financial assets.) Despite the lack of public policies geared toward stimulating homeownership, Canadian homeownership was 68.4 percent in 2008. That would be a higher number than in the United States , which was 67.4 percent in 2009.

Lesson to Americans: If you want affordable housing, stop promoting policies to make it more “affordable.”

Meanwhile, Canada has many of the same assets that Americans like to brag about, such as an immigrant tradition that invites foreigners to live and work in the country. On a per-capita basis, the rate of legal immigration to Canada is comparable to that to the U.S. Settling in world-class, creative cities like Toronto and Vancouver, foreigners add immeasurably to the nation’s wealth-creating capacity.

Talented Canadians have long regarded the United States as the land of opportunity. It may not be long before Americans see our northern neighbor as the land of the future.

It has finally dawned upon the Washington Post news staff that the new crowd of deficit hawks in Congress may not portend well for the regional economy. Indeed, it won't. The only thing that could be worse than the rough patch we'll experience if Republicans make good on promises to slash federal spending by $100 billion would be continuing down the budgetary path to Boomergeddon (when Uncle Sam defaults on his debts and investors refuse to lend anymore), in which case the shortfall could exceed $1 trillion.

Here's my favorite line in yesterday's story, "Federal austerity could hit the region's economy hard":

Some forecasts suggest that the growth of federal spending and procurement could plunge to 1 percent or below in 2011 from an average of about 8 percent annually during the past several years. That could hurt even if the local economy benefits from improvements this year in the U.S. economy.