A Message From Our Executive Director, Michael P. Riccards

Dear Friends:

For over two months the Hall Institute website has been down as we repaired it for use.  It had been hacked into by a person or persons probably from the People’s Republic of China who decided to contaminate it with a computer virus that would have infected our users.  We are pleased to say that the problem has been rectified.

I am not sure why such a step was taken; perhaps it is just for the sake of doing it.  But we are back again, are pleased by your support, and remain committed to the free exercise of ideas at the Hall Institute.

Student Loans: Use Public Funds for College Students, Not for Banks and Private Lenders

By Linda Stamato
A bill introduced in Congress on Wednesday would end the bank-based guaranteed-student-loan program (and provide additional money for Pell Grants, expand the Perkins Loan program from the current $1-billion to $6-billion a year, while overhauling its structure). Introduced by the chairman of the U.S. House of Representatives education committee, George Miller (D-Calif), it mirrors President Obama’s budget proposals by shifting all student loans into the government-run direct-loan program.

Under the bill, banks and other lenders would no longer “originate” federal student loans, but they could compete for the right to service them. And guarantors could compete for grants to provide borrower services like financial-literacy education, default prevention, and borrower retention.

“Many able students are excluded from college for no other reason than their ability to pay” (Center for the Study of Higher Education, Penn State University: 2009)

The House education committee is expected to take up the bill next week.

It’s hard to keep a straight face as private lenders vie to remain in the guaranteed student loan business. With virtually NO private capital available for financing student loans, what banks do is funnel public money to students and keep not a little for their “efforts.” Who thinks it’s a good idea to pay banks to give students public money? The usual suspects: those who benefit directly, their lobbyists, and members of Congress whose “interests” are affected.

Rutgers University Commencement in MayMore than 10,000 Rutgers students depend on the Pell Grant program for tuition aid, and Rutgers ranks among the top 10 public universities in the nation in the number of Pell recipients enrolled

The rhetoric is beyond the pale. Listen to Senator Lamar Alexander (R-Tenn) for example:

“This effort by the Obama administration for a Washington takeover of student loans is just one more example of a long line of Washington takeovers of banks, insurance companies, car companies, health care, that I totally object to.”

What the Obama administration proposed, though, goes like this: Scrap the existing program–so that all federal loans are made directly by the government–in order to save billions of dollars in subsidy payments to lenders, making it possible, then, among other things, to redirect money to pay for expanded grant aid to needy students. According to the Congressional Budget Office, replacing subsidized loans made by private banks with direct government lending would save between $87 and $94 billion over the next decade. (See my earlier blog on the subject: “Finance Federally Guaranteed Student Loans Without a Middleman” for more information).

While making direct loans may seem like a ‘no-brainer,’ it isn’t; too many vested interests are at stake.

Take a look at the lengths to which Citibank is going, for example, to retain the student loan business it has. The bank is spending some portion of its federal bailout funds to lobby against loan reform. And, why not? If the alternative to the Obama plan, to which it subscribes, were to gain approval, Citibank and its colleagues in the private-lending-of-public-money business stand to pocket $15 billion (yes, billion, at the expense of needy students).

The bank emailed borrowers who took out student loans with Citibank encouraging them to write to Congress opposing the administration’s proposal, using such words as “choice” and “service,” but, really, where is the value added in this arrangement of being a middleman between the provider of funds and the receiver of the aid? What choice? What service?

The argument that the Obama plan (and, now, the Wilson bill) will deny students choice is just plain hogwash. The call for “competition” is a joke. The terms on these loans are identical regardless of vendor, so there really is no choice to make.

And, by the way, take note Senator Alexander, under the bill students can still borrow from banks, but their loans would not be guaranteed by the government (let’s hear it for the private sector!) and the interest rate would not be set by the government. (the choice is up to the banks) . More like the competition the private lending crowd should be pleased to see, no? Well, not really. The banks prefer that the public bear the burden and pay the banks for the privilege.

Representative Miller finally got fed up with the game (and introduced his own bill):

“It’s unfortunate that a small number of lenders are using legislative gimmicks to mask the fact that their proposal would divert $15 billion into their own pockets at the expense of students…..This cynical stunt is another reminder that our federal student loan programs need major reforms to ensure they operate in the best interests of students and taxpayers.”

What the banks are seeking is a risk-free business in which they essentially use taxpayer dollars to “originate” loans, with repayment guaranteed, and then resell those loans to the Treasury–this is a system in which they get all the rewards and we, the public, take the risk. What does it take to “originate” a loan? Well, it’s a process the federal government already does, according to the deputy under secretary of education, Robert Shireman, “in a much more efficient way.”

With the government directly or indirectly financing virtually all federal student loans because of the current financial crisis, is there any reason to continue a program that was intended to inject private capital into the education lending system? Hello?

Come on. Let’s cut through all the rhetoric and do what’s right and sensible. Let’s reform the student aid program once and for all and put our dollars where the needs are–with the students. Banks can (and will) take care of themselves.

Reforming the student loan program is a critical element of President Obama’s strategy to make college more affordable, one of three domestic priorities. While there may be legitimate arguments about his other two–heath care and energy–there should be none about this one.

Should Political Campaigns Take an All-Star Break?

By Richard A. Lee

Major League Baseball took its annual mid-season break for the All-Star Game this week, but there was no break in the action in New Jersey’s 2009 campaign for governor.

Two days after throwing out the first pitch at the All-Star Game in St. Louis, President Barack Obama headed to New Jersey to campaign with Democratic incumbent Jon Corzine.  And earlier in the week, Republican National Committee Chairman Michael Steele visited the Garden State for an appearance with GOP challenger Chris Christie.

In political campaigns, the stakes are high and time is always short. A short hiatus, such as baseball’s three-day All-Star break, appears – at least at first glance – to be unwise and impractical. But think about it for a moment.

Baseball takes a three-day break while teams are competing for first place, players are chasing records, and milestones are approaching – and it does not diminish interest in the sport or the intensity of competition.  In fact, teams, players and fans can be re-energized by the break, making for a more exciting second half of the season.

The All-Star break does something else for baseball that would benefit politicians: It humanizes the players. True, they are superstars with tremendous physical skills, but we also see how much they are just like us. Like fans, they take pictures and videos of the players and festivities. We see them with their wives and children (and in some cases, parents) at events such as the AllStar Red Carpet Parade and the Home Run Derby. And when they meet the President of the United States, their faces exude the same sense of excitement, nervousness and honor that any American would display.

Politicians often try to paint a similar picture. They strive to humanize themselves because they know there is a value to making voters feel that they are just like them. As Roland Barthes wrote in an essay about photos used by politicians: “A photograph is a mirror, what we are asked to read is the familiar, the known; it offers to the voter his own likeness, but clarified, exalted, superbly elevated into a type. This glorification is in fact the very definition of the photogenic: the voter is at once expressed and heroized, he is invited to elect himself.”

Another significant occurrence that takes place during the All-Star break is the opportunity to see that athletes who are fierce competitors throughout the season can actually appreciate and respect each other’s talents, and work together as a team toward a common goal. Political campaigns, by their nature, rarely allow for such dynamics. Instead, opponents are attacked and demonized in an effort to obtain victory at the polls.

Despite any benefits that may accrue if politicians followed baseball’s lead and took a short mid-campaign break, chances are slim that it will ever happen. But we do have some history that lends additional support to the concept.

After the 9/ll terrorist attacks, politicians – including New Jersey’s gubernatorial candidates – put their campaigns on hold. When they did resume, the tenor was more civil and the debate was more substantive than personal. Granted this was reflective of the mood of the nation at that time, but the different view we saw of the candidates was much like the different view we see of baseball players during the All-Star break.

We experienced a similar moment last year after popular TV journalist Tim Russert passed away during the presidential campaign.  For one day during the hotly contested race, Barack Obama and John McCain were not rivals competing for the highest office in the nation. Instead, at Russert’s funeral at Holy Trinity Catholic Church in Washington, D.C., they sat side by side, two of many people who had come to pay their last respects to a man they all admired.

Will we see any similar camaraderie in New Jersey during this year’s governor’s race? Probably not, but that doesn’t mean we should refrain from taking inspiration from baseball. As the president said before Tuesday’s All-Star game, “As a sport, baseball has always embodied the values that make America great – hard work, leadership, passion and teamwork.”

Indeed, these are traits that can lead to success on the ball field, on the campaign trail and in virtually all aspects of our lives.

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New Jersey Public Pensions – A Comparative Perspective

By Michael P. Riccards

One of the major foundations in this country, operated by the Pew group, is a center devoted to the states which examines the challenges that impact pensions in the fifty states. The comparative study of public pensions offers conclusions that we in New Jersey would do well to heed.

The study completed in 2008 shows serious problems in the funding mechanisms of most jurisdictions, but generally the states in 2008 had enough assets to cover about 87 percent of their liabilities.  In the last several years, the worth of many of these public pensions (as well as private pensions) has dropped appreciably.  In the case of New Jersey the pension system had once achieved a balance of $86 billion. Now assets are closer to $56 billion.

According to Pew, the total bill coming due in the state is $109.6 billion.  This does not include calculations for other benefits, most notably medical costs, costs that are rapidly rising from the early Pew calculation of $21.6 billion.  Medical costs are complicated by the role that the Federal government may soon play, but we do know that New Jersey has put $0 aside to cover the other benefits costs as of now.

Nationally, the total US bill for pensions and benefits in the public sector is $2.73 trillion over the next several decades.  New Jersey has consistently fallen short with its contributions.  Some states like Georgia and Oklahoma require that any proposed benefit increase be complimented by an actuarial calculation of costs.

One interesting development is the offering of hybrid plans in at least four states that combine elements of defined benefits and defined contribution plans.   The first plan assures the retiree a specific dollar amount. The second, the idea of a defined contribution, is one in which the employer is committed to put into the account a specified amount of money.  Some states like Oregon blend both mythologies.  By 2000, about half of the states’ pensions systems were fully funded, largely due to the strong performance of the stock market.  But the movement to equities and the great recession of the last two years has resulted in huge declines in the worth of state portofolios.

In New Jersey, the state’s legislative representatives proposed replacing the traditional defined budget plan for newly elected and some appointed officials, and prohibited professional service contractors from being part of the state’s pension plan as of January 2008.  The state also approved a 10 percent increase in contributions for some public employees.  Critics have argued however that state changes have not gone into effect in  ways that had been anticipated.

Across the nation, state pension problems have been aggravated by the costs of other post retirement benefits—most especially health care.  With the current national debate over health care and the acceleration costs of medical technology and testing, the issue of guaranteeing medical care for all retirees in the public sector has become extremely complicated.

The Pew study concludes that “New Jersey has done an abysmal job of keeping up with annual funding requests for its pension system.”  In addition, the state is facing a bill of over $21 billion for other benefits, and the costs are growing rapidly.  No funds have been set aside for the latter commitment.  Officials in New Jersey have too often discounted concerns about the pension fund, insisting that the least bit of criticism is partisan inspired.  It is impossible to make that accusation against Pew.  Like it or not, New Jersey is becoming the General Motors of the states: bloated, slow moving, unconcerned about quality, union driven, and unreceptive to change, reform, and readjustment.

Organs for transplant: Improving the supply by shifting the policy (from opting in to opting out)

By Linda Stamato

Most people support organ donation and organ transplants but, as it turns out, they don’t donate. Given the former, how do we encourage the latter? How does (or can) society encourage positive behavior? Should government attempt to affect certain decision-making behaviors? Whether we’re talking about limiting climate change, for example, or promoting healthy living, or donating organs, one crucial question is whether (and, if yes, when) to use the techniques and tools of science, particularly cognitive science, to try to steer people toward better choices.

In “Why Isn’t the Brain Green?” (The New York Times Magazine) Jon Gertner explores this question. He is struck by the fact that Americans fail to place concerns about climate change, for example, high on the nation’s list of critical priorities and so individuals fail to make decisions and take actions that reflect that concern. Accordingly, policy experts are turning to the work of cognitive scientists, especially those who work in the area of decision science, to discern ways to encourage behavior changes to protect the environment and limit negative climate change.

An image from an organ donation website

This same research is remarkably useful in consumer psychology and may offer a critical insight into how to increase the availability of organs for transplant. Richard Thaler, a pioneer in the field, and author, with Cass Sunstein, of Nudge: Improving Decisions About Health, Wealth, and Happiness (Yale University Press, 2008), conducted research on consumer savings patterns that has direct relevance. Thaler found that many more people saved money in a 401(K) retirement plan if they did not have to take active steps to join the plan. In one study, only 45 percent of a company’s new employees participated in the 401(K) plan when doing so required them to take some kind of action, like filling out a form. However, 86 percent participated when doing so was the default option.

And, Max Bazerman, along with colleagues at the Harvard Business School, investigated how people make unwise tradeoffs. One finding is particularly relevant. It’s this: Most people agree that organ donation makes sense, but, as noted above, they don’t donate. Most people accept the default position, the status quo. It is not that people are deciding not to donate; rather, they are not thinking about it. In countries other than the United States, the default is that unless you specify that you do not want to donate your organs, you become a viable donor at death. In the U.S., unless you actively decide to donate, you are not likely to be a donor. Thus, the default approach that society imposes dramatically affects donor rates. As a result of the U.S system, according to Bazerman, 6,000 people die each year who might not have given a change in the default.

Organs in the body that can be donated and transplanted

There really is a difference in how a choice is presented.

In “Expand pool of blood donors” the The Star Ledger editorial on 15th of February, 2009, observed:

“When it comes to our blood, we’re selfish. Only 2.5 percent of eligible New Jerseyans donate blood, compared to the national average of 5 percent.
But, oh, when we need blood, when our life hangs in the balance, we want it.”

The same point can be made about all organ and tissue donations. The “Chain of Life” three-part multimedia series by The Star Ledger in June, makes the case urgently and passionately. As does a column that appeared in February, 2009, which featured the lives of the five recipients of the organs of a young man, Dennis Maloosseril, who was killed by a gunman inside a church in Clifton. His parents donated his heart, lungs, liver, kidneys and pancreas to donors. These stories, compelling as they are, help to heighten awareness of the need for organs for transplant. As do efforts, say, by employers to promote organ donation by their employees, such as Rutgers University, my employer, does. And, too, changes in the law such as the New Jersey Hero Act that was signed into law in October of 2008 that requires residents of New Jersey who are applying for a driver’s license to consider becoming organ donors. This consideration certainly does make people think.

But, as important as new law and education efforts are, organ donations will not keep pace with the need for them. (The New Jersey Organ and Tissue Sharing Network reports an increase in organ donations but, at the same time, thousands of state residents await organs to save their lives.

We have to think about this problem differently.

We could provide incentives such as life-long Medicare coverage or even tax credits or vouchers. Through greater educational efforts, too, we could hope for a surge in altruism. Fundamentally, though, while these efforts might increase the number of organ donations, the problem will remain unsolved because the need is so great.

In “Enlarging the Societal Pie through Wise Legislation: A Psychological Perspective,” Max Bazerman, this time with fellow authors Jonathan Baron and Katherine Shonk, looked into the psychology of decision-making and the impact on policy. They asked this question, “Why are organ-donor programs constrained to the point where thousands of Americans die needlessly each year?” They posed the following hypothetical:

a. If you die in an auto accident, your heart will be used to save another person’s life. In addition, if you are ever in need of a heart transplant, there will be a 90 percent chance that you will get the heart.

b. If you die in an auto accident, you will be buried with your heart in your body. In addition, if you are ever in need of a heart transplant, there will be a 45 percent chance that you will get the heart.

They asked the study participants which of these options they’d prefer. Most people choose “a” as the benefit of the trade-off is quite clear. Yet government policy, yielding to what psychologists term “omissions bias”– which is the “irrational preference for harms of omission over harms of action”–follows an organ donation program that favors “b.”

This is a striking result that clearly supports a change in policy: We need to switch to a ‘default’ system that functions as follows: Unless you specify that you do not want to donate your organs, you become a viable donor at death. By this simple shift in policy, organ donations would rise substantially.
A free collection of articles on transplants can be found at this website.

“All Honor to Jefferson”

The author of American Virtues: Thomas Jefferson on the Character of a Free People and editor of The Essential Jefferson, Jean Yarbrough recently delivered a speech to dedicate a statue of Thomas Jefferson erected recently on the campus of Hillsdale College.

It is one of the wonders of the modern political world that John Adams and Thomas Jefferson both died on the 50th anniversary of the Declaration of Independence. Unaware that the “Sage of Monticello” had died earlier in the day, the crusty Adams, as he felt his own life slipping away, uttered his last words, “Thomas Jefferson still lives.” And so he does. Today, as we dedicate this marvelous statue of our third President, and place him in the company of George Washington, Winston Churchill, and Margaret Thatcher on Hillsdale’s Liberty Walk, soon to be joined by Abraham Lincoln, it is fitting to reflect on what of Thomas Jefferson still lives. What is it that we honor him for here today? Without question, pride of place must go to Jefferson as the author of the Declaration of Independence. That document established Jefferson as one of America’s great political poets, second only to Abraham Lincoln. And fittingly, it was Lincoln himself who recognized the signal importance of its first two paragraphs when he wrote: “All honor to Jefferson—to the man who, in the concrete pressure of a struggle for national independence by a single people, had the coolness, forecast, and capacity to introduce into a merely revolutionary document, an abstract truth, applicable to all men and all times,” where it continues to stand as “a rebuke and a stumbling block to the very harbingers of reappearing tyranny and oppression.”

Click here to read “All Honor to Jefferson”

Just What Does $340,000 Buy You These Days?

By Richard A. Lee

By raising more than $340,000 for his independent campaign for governor, Chris Daggett has qualified for public matching funds, as well as the right to participate in two official debates this fall.

Just what else will result from having met the $340,000 threshold is not so clear.

Does it give Daggett a realistic opportunity to compete with the two major party candidates? Will his candidacy take votes away from Republican candidate Chris Christie? Can it somehow hurt Democratic incumbent Jon Corzine’s chances for re-election? Or will it simply be a wash with relatively equal numbers of Democratic and Republican voters opting for an independent candidate?

We won’t know the answers to these questions until after Election Day in November, but in the interim, there will be plenty of speculation. For my part, I decided to take a look at three research studies on independent and third-party candidates and see how the findings may – or may not – apply to this year’s race for governor in New Jersey.

There is a progression in the three studies. The first takes a broad look at challenges to our two-party system; the second focuses on minor party candidates in gubernatorial elections, and the third examines the successful campaign of a third-party candidate for governor – Jesse Ventura, who was elected governor of Minnesota in 1998. Here is what I found:

Challenges to the American Two-Party System: Evidence from the 1968, 1980, 1992, and 1996 Presidential Elections by Paul R. Abramson, John H. Aldrich, Philip Paolino and David W Rohde (2000)

In this study, the authors found that independent candidates benefit when voters’ connections with the major political parties are weakened. Moreover, dissatisfaction with the major party candidates – as opposed to their parties – played a greater role in voters’ support for independent candidates. According to the study: “The people supporting an independent candidate are not those harboring a long-developed disaffection from the major parties, but rather are those who can be moved to express anti-party views because, and probably only because, they are disaffected from the parties’ candidates in a particular election.”

In New Jersey’s race for governor, both major party candidates have been blaming the opposing party for today’s dire economic conditions. At the same time, there have been many direct attacks upon both Corzine and Christie. Based on this study’s findings, independent candidates such as Daggett would benefit more if the major party candidates target each other, rather than their political parties.

Picking Their Spots: Minor Party Candidates in Gubernatorial Elections by Steve B. Lem and Conor M. Dowling (2006)

Lem and Dowling examined gubernatorial elections in all states between 1982 and 2000. Their research was designed to determine why minor party candidates run for office when the chances of winning are slim. The authors also suggested that independents can benefit from “ideological gaps” left by the major party candidates. Such gaps create opportunities “to offer something different than the Democrats and Republicans,” they wrote.

Providing voters an alternative to the major party candidates has been a big part of Daggett’s message. By exploiting gaps in the Corzine and Christie campaigns, he and the other non-major candidates in the race could increase their appeal to New Jersey voters if this year’s election is consistent with Lem and Dowling’s findings.

The Origins and Impact of Votes for Third-Party Candidates: A Case Study of the 1998 Minnesota Gubernatorial Election by Dean Lacy and Quin Monson (2002)

Of the three studies, this is the most interesting in that it explores the circumstances surrounding an independent gubernatorial candidate who won an election. However, many of the factors accounting for Jesse Ventura’s 1998 victory in Minnesota were unique to that campaign.

While Ventura entered the race with high-name recognition due to his career as a professional wrestler, he also benefited from a well-timed newspaper report, a rare state election law, creative use of public funds, the absence of an incumbent on the ticket, and a tight campaign between the two major party candidates, both of whom had emerged from hotly contested and potentially divisive primary elections.

According to Lacy and Monson, as late as mid-October, polls were showing Ventura with just about 10 percent of the vote. But his numbers rose steadily in the latter part of October – so much in fact that on the Sunday before Election Day, the Minneapolis Star Tribune reported that he had a realistic chance of winning the election. The report had a profound and positive impact for Ventura.

“Even though he never officially led in the pre-election polls, the signal communicated to voters through the press was that Ventura was in a position possibly to win,” the authors explained. “In the close three-way race this significantly reduced the incentives to vote strategically.  Third party candidates face a perpetual problem of losing their supporters to strategic voting: third party voters often defect to their second most preferred candidate in order to avoid electing their least preferred candidate. With his momentum in the polls and eventual victory, Ventura overcame the usual trend.”

The timing of the newspaper report was extremely beneficial for Ventura because Minnesota is one of the few states that allow citizens to register to vote on Election Day, making it possible for those who decided to support him – even at that late stage of the campaign – to cast ballots. Ventura’s rising poll numbers also made it likely he would qualify for public funds – but not until after Election Day. So he took out a loan, used it for late advertising and paid it back after the election.

The scenario in New Jersey this fall will be much different, but one element of Lacy and Monson’s findings may have implications in the Garden State, where Democrats hope to nationalize the election and benefit from President Obama’s popularity, while Republicans contend that state issues will determine the outcome. The study found that voter attitudes on the condition of the nation had no effect on Ventura’s support. Conversely, the condition of the state played a more significant role.

“Ventura’s electoral success was due to dissatisfaction with Minnesota government rather than a reaction to national conditions,” Lacy and Monson wrote. “People who believe Minnesota is on the right track are more likely to vote for the major-party candidates than for Ventura.”

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These research studies provide a good starting point for discussion of New Jersey’s race for governor. At the end of the day, however, every election is unique with its own set of candidates and circumstances. How Chris Daggett and the other candidates fare in New Jersey in 2009 will be determined by the distinctive factors in place in our state this year.

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