Can You Manage Inequality?

This is an alternative proposal by Ian Ayres, Law Professor at Yale and Aaron S. Edlin, Economics and Law Professor at UC Berkeley. In 1980 the richest 1% of Americans made 9.1% of the nation’s pre-tax income. By 2006, that share had risen to 18.8%. Focusing on this increase the two professors suggested that if one looks at what is known as the Brandeis ratio (the average income of the nation’s 1% to median household income), in 1980 this was 12.5 meaning that the average 1-percenter made 12.5 more than the median income. By 2006 this grew to 36.

Here is where the gentlemen would like the ratio to top out at. The proposal is an automatic tax on the 1% should the ratio rise above 36 moving forward. What the government would do with that revenue is unclear. But the thought is if billionaires knew they would be taxed additionally if the inequality gap continued to widen, they would make sure corporate wealth trickles down sufficiently to the middle and lower classes in order to keep the ratio constant at 36 thus avoiding the additional tax. Feasible or bad policy?

Hard to Fit the Mold if the Mold Doesn’t Exist

As I watch events unfold like the latest protest by Occupy folks against Obama with signs like, “Obama is a corporate puppet” or “I sold out” I am really hard-pressed to come up with a world leader, at least in my lifetime, who has lived up to the expectations placed upon him/her. I remember when Obama was elected and the lead up to his inauguration. You would have thought we (the U.S.) had just gained our independence. The fervor was out of this world and Obama was saddled with the audacious goal of righting the ship … in 4 years.

Well, fast forward to December 1, 2011 and regardless of how you feel towards Obama and his leadership to now, it should be clearly evident he is no messiah, but then again, who is/has been? Are we putting way to much faith in elected officials? Do we really think that they can operate without any self-interest whatsoever and avoid all of the typical human trappings that we as a society have always struggled with for hundreds of years? Why do we fall into this redundant group-think every 4-8 years thinking that all of sudden we have stumbled upon someone that will tell corporate interests and lobbyists to shove it, “no thanks, I am here to govern, sir!”

But more than anything, who/what is the model of effective governance that we are trying to achieve? Hard to blame any leader if we cannot even point to a “best practice” example.

Interesante Punto de Vista sobre la Culinaria Chilena

Recién leí una entrevista con el destacado chef de Osaka, aquí en Santiago. El es peruano y le pregunto … -¿Cómo ves la culinaria chilena frente a la culinaria peruana?

Llevamos la delantera, porque muy aparte de la calidad y cantidad de insumos que poseemos, tenemos una tradición e historia culinaria muy rica. La identidad gastronómica que posee el peruano la lleva en los genes, la queremos, respetamos y valoramos porque la conocemos; conocemos de donde y porque surgieron esos platos….para querer y hacer algo por tu cocina, la tienes que conocer y entender, y a mi parecer eso falta acá en Chile, conocer, rescatar y valorar los productos y preparaciones propias de sus pueblos; no basarse o querer imitar y pensar que lo mejor es lo francés, alemán o italiano (por mas que exista una gran comunidad alemana o italiana)

Lamentablemente lo veo así también. Que opinan Uds.?

No to Bureaucrats, Yes to Grande Frapuccinos

Starbucks is embarking on a fantastic initiative that will infuse much-needed lending capital to small American businesses. Via Community Development Financial Institutions (CDFIs which are mostly non-profit entities serving underserved communities) Starbucks patron donations will be leveraged to eventually fund lending to those businesses most capable of creating new employment in a down economy.

I came across this article in the New York Times. The initiative is fantastic – your donation when you buy a cup of coffee goes directly to the CDFI which works in a similar manner to online microlending platforms for small businesses in the developing world. Yet what bugged me about this article was the time spent lambasting the government and formal sector banks for what they should have or should be doing with regard to small business development and thus Starbucks “has” to step in and partner with this dynamic community lender to fill the void. Huh?

Starbucks and the CDFI folks who came together on this is precisely the reason why the American economy is so resilient. It is because we do not expect the government to be involved in all facets of the economy, down to job creation of all things. I think what this economic crisis has hopefully revealed is entrepreneurial spirit and linking folks together for a common cause is a much more reliable and solvent vehicle for development than government can ever be.

Who’s Next in Venezuela?

It is hard to say whether Chavez is progressing positively or negatively in his medical bunker in Cuba. As such, speculation has commenced as to what will become of Venezuela should Chavez not return. Here are some interesting candidates to occupy the power vacuum. I welcome any additions or prognostications on your end … 

1) Adan Chavez Frias – Chavez’s older brother and governor of Barinas state. He has served as the president’s private secretary, education minister and ambassador to Cuba. Adan maintains a close relationship with Hugo and the Cuban leadership. He keeps a relatively low profile but is very committed ideologically. Trust abounds with Adan. 

2) Maria Gabriela Chavez – Hugo’s second oldest child. She, similar to Keiko Fujimori in Peru, is regarded as her Dad’s protégé. She serves the role of first lady and has been at her father’s side throughout his fight with cancer. She’s been very visible and the Castro brothers approve, so a likely candidate as well. 

3) Ali Rodriguez Araque - Has been with Hugo through thick and thin. He has held posts as electricity minister, energy minister, foreign minister, finance minister, PDVSA president, secretary-general of OPEC and Venezuelan ambassador to Cuba. Interestingly, it is rumored that Chavez is a bit peeved by the close relationship Ali has with Fidel Castro. Considering this and the influence the Castros have over Venezuela, this guy is an intriguing pick. 

4) Nicolas Maduro Moros – Serves as the foreign minister and was Hugo’s bodyguard after Chavez was released from prison.  He maintains a strong relationship with the Castros and has employed a lot of Cubans as consultants under his watch.

Rush Hour Gratification (Se Puede Encontrar Satisfacción en Horas Peak del Trafico)

I recently came across an interesting incentive scheme to reduce peak-time congestion. Based on a pilot that was successful for a large company in India that ran its own company buses for employees, workers earned 1 credit for each journey taken, and 3 credits for each journey taken during off-hours with the chance to win a substantial lump sum based on a lottery system at the end of the month. The scheme effectively doubled the number of off-peak commuters and the cost of the lump sum at the end of the month could have been quadrupled before eating up the savings generated from running fewer buses.

Similar models have been implemented before, but this one is unique in two ways:

1) By offering a chance to win say $1,000 at the end of the month or win 50 cents for taking an off-peak bus on any given day, the individual opts for the big payday.

2) The employees at this company all worked together. They put a face to the winner at the end of each month and naturally projected themselves occupying that lucky position sometime in the upcoming months.

Still trying to work out how this could take place in a large city, but it would appear rewards-based schemes might be the better option than punitive ones currently employed in many cities.

Recién encontré un modelo incentivo bien interesante para reducir la congestión durante horas peak del tráfico. Basado en un estudio piloto exitoso dentro de una compañía privada en India, la compañía se los proveía a sus trabajadores buses diarios. Los empleados recibieron un crédito para cada viaje, y 3 créditos para cada viaje tomado afuera de las horas peak. Al fin de mes, hubo una lotería y el ganador (los que tuvieron más créditos tuvieron una mejor chance para ganar) gano un monto fijo. Al final el modelo efectivamente doblado el número de viajeros durante las horas non-peak. Además, el costo del premio cada mes era un cuarto de los ahorros que la compañía realizo por no usar tantos buses.

Modelos parecidos han estado implementado antes, pero este modelo es único por dos razones:

1) El chance para ganar por ejemplo $1,000 al fin de mes o ganar 50 centavos por cada viaje fuera de horas peak es clave. El individuo, según el piloto, elegiría el $1,000 casi 95% del tiempo.

2) Los empleados trabajaron juntos (en la misma compañía). Ellos pudieron visualizar los ganadores, los conocían, entonces naturalmente era muy fácil pensar en uno mismo ganando también.

Todavía me cuesta concebir como implementaría esto en una ciudad grande sin conocidos familiares, pero parece que modelos que regalan en vez que castigan de vez en cuando funciona mejor.

Breaking News – People like their cars & living in Los Angeles

Having grown up in Los Angeles I can attest to the validity of an admittedly unsubstantiated headline. This past weekend my motherland embarked on what had been dubbed a practice that would effectively end the world, at least in Los Angeles, as we know it. The proposal …. shut down the 405!!!

For everyone outside of L.A., the 405 is the major north-south interstate highway in Southern California. It is the busiest and most congested freeway in the United States. Needless to say, a lot of people take it, depend on it, curse it, and adore it, especially on Sunday mornings prior to 10AM.

It has long been congested which has prompted all sorts of policy measures over the years to clear up the 405. Couple problems: 1) L.A. has always been a car-town. People love their cars, distances are far, public transportation is actually available but the car culture is engrained and the city is too spread out to lead anyone to public transport; 2) The city is popular and keeps growing. Nobody is going anywhere, for now, and new drivers are springing up by the boat-load daily.

Back to last weekend, basically they closed the 405, public service announcements essentially communicated that should people actually choose to leave their homes that day traffic would be horrendous as a result, so in the end not that many people left home. After all was said and done, there were no terrible repercussions (Dr’s not being able to get to ER’s, etc.) and yesterday, Monday, everyone had their own, “it was such an enjoyable day spending time with family and walking everywhere moment.”

Living in Chile I can only imagine what it was like, but I have been reading now countless stories of how great this was. Some as far as saying it would be fantastic if people were encouraged to stay home more. Maybe it is just the cynic in me, but people didn’t stay home because they wanted to stay home. They stayed home because they knew if they left home traffic would be a nightmare. And what about all of the vendors around the city that lost business that day? I don’t hear much coverage on that side …

In the end they expanded the 405 which will put a band-aid on the traffic snafu, but until they install toll roads I can’t see this problem ever ending. The highway unfortunately is a commodity as well and people are paying now with time lost, stop and go wear and tear on your car, traffic stress. I’d argue it would cheaper for everyone to let some folks pay if they want to move faster.

I’m curious if other similar-sized cities with comparable congestion problems around the world have solved such a problem without toll roads.

My Experience with a Different Social Security Model

Upon moving to Chile I was quickly integrated into a different social security model, one that demanded my active participation and albeit daunting at first, quickly made sense not only for someone like myself occupying the middle-class but for all sectors, rich, middle and poor.

We’ve all more than likely heard the cries against the proposed privatization of social security in the U.S. What will happen if the market crashes, is the private sector really capable of handling an issue as sensitive as the well-being of each and every citizen upon retirement? Well, I would say flat-out, no. But the model, at least here in Chile, is not a completely private-sector initiative. Rather, it is an excellent example of a public/private partnership that I believe, smartly implemented, can be achieved in the U.S.

In 1981 the Chilean government embarked on the new system. Instead of the old 26% payroll tax, workers here in Chile are now required to place 10% of their wages into special savings accounts. These accounts range in risk and there are a number of providers to choose from. From a regulatory side, the providers are required to guarantee a minimum return relative to other providers. This therefore results in little variation between providers. There are also rigid restrictions on the commissions charged by the providers. Now, the one issue that has been tough to regulate as a result of the above mentioned regulation is the aggressive marketing that providers engage in to attract clients. Due to little variation between providers they must do their utmost to market their fund thus driving up administrative costs. But what model is perfect, right!

The beauty of this system though does not lie in the returns, but rather the agreement with the government and the resulting psychological effects on the populace as a whole. The Chilean government addresses the biggest fear of a privatized system by maintaining a safety net in the form of a minimum pension guarantee. If a retiree’s private benefits don’t meet a minimum threshold for any reason, the government will make up those benefits bringing them back up to that threshold. These are funded from general tax revenue and not a payroll tax.

Second, and most important, is this system explicitly implies that each and every Chilean citizen, regardless of their socio-economic status, has enough brains to manage their retirement. This is a concept that flies in the face of big government, namely that there are always segments of the population that will need government hand-holding because they are not capable of integrating themselves into the greater society. I have seen first-hand how empowering this system is, specifically within some poorer populations. People get it, the funds and their returns are communicated clearly and do not bog the customer down with complicated financial equations or market-talk. People understand what each fund has returned over the previous year and the risk level associated with it.

I do not believe for one bit similar populations in the U.S. would not be able to grasp and manage this either. This in my opinion is a political issue and one that serves party interests. Empowering people should be the goal here, not more hand-holding in exchange for votes.

What to Make of Peru’s Immediate Future

Living in Chile relations with Peru are important. Geographic neighbors, a large Peruvian contingent in Chile, a volatile past which has subsided but continues to emerge as a talking point by Peruvian politicians looking to gain ground.

Today I was reading an article in a Chilean newspaper that quoted a Peruvian living in Chile. The article goes on to say …

“that most of the negativity associated with Humala is based more on paranoia than reality. Humala’s platform ultimately is not based on changing the fundamental rules of the economic or political system,” he added. “Any changes he does make will concern how money is redistributed.”

Hmm, so no major changes other than redistributing money throughout the economy. A harbinger for things to come as the Peruvian stock exchange plummeted upon the news Humala had won.

These will be interesting times for Peruvians as I would go out on a limb to suggest redistributing money is not a minor thing. While inequality exists, the policies to address that should be well-reasoned and are above all, a major change to the economic and political system.

Mexico Trying to Shed the Siesta Stigma

The OECD’s recent report on which countries work the longest hours left me questioning what I can really ascertain from this information. Mexico for example heads the list working on average 9.9 hours per week. Belgium at the other end of the spectrum is at 7 hours per week. Coupled in with Mexico are Japan, Portugal, Estonia, Canada, China and New Zealand. Down with Belgium are Denmark, Germany, South Africa, France, and the Netherlands. In fact, except for South Africa, most of the bottom feeders are wealthy European nations.

The OECD makes some interesting conclusions in that Mexicans perhaps need to work longer hours because many hold more than 1 job. Making ends meet in Mexico relying on 1 formal sector job is quite difficult, so that perhaps explains the longer work day. But where are productivity numbers, and don’t those tell the real story? Maybe I’m missing something but the number of hours one works in a week is useless information without accompanying data to explain the variations.