Best Selling Books December 2, 2005; Page W4 http://online.wsj.com/article/SB113348795046512005.html?mod=todays_us_weekend_journal The Wall Street Journal's list of best-selling books for the week ended November 26. Fiction No. Title Author / Publisher This Week Last Week 1 Mary, Mary James Patterson / Little, Brown 77 122 2 Light From Heaven Jan Karon / Viking 50 46 3 Harry Potter and the Half-Blood Prince J.K. Rowling / Arthur A. Levine/Scholastic 48 21 4 At First Sight Nicholas Sparks / Warner Books 47 28 5 Penultimate Peril Lemony Snicket / HarperCollins 43 40 6 Camel Club David Baldacci / Warner Books 33 26 7 The Lighthouse P. D. James / Knopf 29 New 8 Predator Patricia Cornwell / Putnam 28 34 9 Dark Lord: The Rise of Darth Vader James Luceno / Del Rey 26 New 10 A Feast for Crows George R.R. Martin / Spectra 24 36 11 Eldest Christopher Paolini / Knopf 24 18 12 Christ the Lord Anne Rice / Knopf 21 23 13 Knife of Dreams Robert Jordan / Tor 19 18 14 The Da Vinci Code Dan Brown / Doubleday 18 14 15 Son of a Witch Gregory Maguire / ReganBooks 15 13   Nonfiction No. Title Author/Publisher This Week Last Week 1 Our Endangered Values Jimmy Carter / Simon & Schuster 51 39 2 Teacher Man Frank McCourt / Simon & Schuster 50 54 3 Team of Rivals Doris Kearns Goodwin / Simon & Schuster 48 40 4 The World Is Flat Thomas L. Friedman / Farrar, Straus & Giroux 39 33 5 Healthy Aging Andrew Weil / Knopf 28 19 6 The Year of Magical Thinking Joan Didion / Knopf 27 26 7 Marley & Me John Grogan / William Morrow 25 21 8 Freakonomics Steven D. Levitt, Stephen J. Dubner / William Morrow 24 22 9 700 Sundays Billy Crystal / Warner Books 23 16 10 Martha Stewart's Baking Handbook Martha Stewart / Potter 22 14 11 You: The Owner's Manual Michael F. Roizen, Mehmet Oz / HarperResource 22 -- 12 My Friend Leonard James Frey / Riverhead 19 19 13 The Truth (With Jokes) Al Franken / Dutton 19 21 14 The Education of a Coach David Halberstam / Hyperion 19 7 15 1776 David McCullough / Simon & Schuster 18 7   Business No. Title Author/Publisher This Week Last Week 1 Freakonomics Steven D.Levitt, Stephen J. Dubner / William Morrow (H) 24 22 2 Jim Cramer's Real Money James Cramer / Simon & Schuster (H) 12 10 3 Secrets of the Millionaire Mind T. Harv Eker / HarperBusiness (H) 8 12 4 The Tipping Point Malcolm Gladwell / Back Bay (P) 8 12 5 Rich Dad Poor Dad Robert Kiyosaki, Sharon Lechter / Warner Business (P) 5 9 6 Now, Discover Your Strengths Marcus Buckingham, Donald O. Clifton / Free Press (H) 4 7 7 Who Moved My Cheese Spencer Johnson / Putnam (H) 4 7 8 The Five Dysfunctions of a Team Patrick M. Lencioni / Jossey-Bass (H) 3 5 9 Winning Jack Welch, Suzy Welch / HarperBusiness (H) 3 5 10 Little Red Book of Selling Jeffrey Gitomer / Bard Press (H) 2 6 11 Getting Things Done David Allen / Penguin (P) 2 1 12 The Martha Rules Martha Stewart / Rodale Press (H) 2 3 13 Rich Dad's Before You Quit Your Job Robert Kiyosaki, Sharon Lechter / Warner Business (P) 2 2 14 Money Book for the Young, Fabulous and Broke Suze Orman / Riverhead (H) 2 2 15 How Full Is Your Bucket Tom Rath, Donald O. Clifton / Gallup Press (H) 2 1 The Wall Street Journal's list reflects nationwide sales of hardcover books during the week ended last Saturday at more than 2,500 Barnes & Noble, B. Dalton, Bookland, Books-a-Million, Books & Co., Bookstar, Bookstop, Borders, Brentano's, Coles, Coopersmith, Doubleday, Scribners and Waldenbooks stores, as well as sales from online retailers Amazon.com and barnesandnoble.com. The business list also includes figures from 800-CEO-READ. A sales index of 100 is equivalent to the median number of copies of the No. 1 fiction bestselling titles sold each week during 2005.

Short List of Short Stories
Three collections of stories, from a writing heavyweight, a small-press author and an Irish immigrant, have been named finalists for the second annual Story Prize, a $20,000 award for short fiction that will be presented after a reading by the authors at the New School in Manhattan on Jan. 25. The finalists are Jim Harrison, the acclaimed novelist, poet and essayist, for "The Summer He Didn’t Die," three novellas published by Atlantic Monthly Press; Maureen F. McHugh, best known for her science fiction novels, for "Mothers & Other Monsters," 13 stories published by Small Beer Press of Northampton, Mass.; and Patrick O’Keeffe, a lecturer at the University of Michigan who immigrated to the United States from Ireland in the mid-1980’s, for "The Hill Road," four stories published by Viking.
Edward Wyatt, "Short List of Short Stories," The New York Times, December 7, 2005 --- http://snipurl.com/NYTshorts
 

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Top 10 Books in 2005 According to The New York Times --- http://snipurl.com/NYTtop10
 

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Suggestions for accountancy from the Directors of the SEC and the FASB

From The Wall Street Journal Accounting Weekly Review on December 9, 2005

TITLE: SEC's Cox Wants Simpler Rules, More Competition for Accounting
REPORTER: Judith Burns
DATE: Dec 06, 2005
PAGE: C3
LINK: http://online.wsj.com/article/SB113381176660114298.html
TOPICS: Accounting, Auditing, Auditing Services, Public Accounting, Sarbanes-Oxley Act, Securities and Exchange Commission

SUMMARY: Questions relate to helping students understand the status various influences on the accounting profession from the AICPA, the SEC, the FASB, and the legislature via the Sarbanes-Oxley Act.

QUESTIONS:
1.) Where did SEC Chairman Christopher Cox describe the ways in which he wants to see change in the accounting and auditing professions? What is the purpose of that organization? (Hint: you may find out about the organization's mission via its web site at www.aicpa.org 

2.) In accordance with law, how is the Securities and Exchange Commission (SEC) responsible for accounting and reporting requirements in the United States? Hint: you may investigate the SEC's mission via its web site at www.sec.gov 

3.) What are the issues associated with complex accounting rules? Who establishes those rules? In what way are those rules influenced by the SEC?

4.) The SEC has named an interim chairman of the Public Company Accounting Oversight Board (PCAOB). How is this speech's topic related to the process of change in leadership at the PCAOB?

5.) Commissioner Cox indicated his concern over the fact that only 4 public accounting firms perform audit and accounting work for most of the publicly traded companies in the U.S. and that regulators may have contributed to that concentration. How is that the case? What might regulators do to change that situation?

"SEC's Cox Wants Simpler Rules, More Competition for Accounting," by Judith Burns, The Wall Street Journal, December 6, 2005; Page C3 --- http://online.wsj.com/article/SB113381176660114298.html

U.S. securities regulators hope to make accounting rules less complicated while increasing competition in a field now dominated by just four firms, Securities and Exchange Commission Chairman Christopher Cox said.

Addressing a meeting of the American Institute of Certified Public Accountants, Mr. Cox called for clearer, more straightforward accounting rules, saying that would benefit investors, public companies and accountants.

"Plain English is just as important in accountancy," he said.

Mr. Cox also raised concern about concentration in the U.S. accounting profession, with the Big Four firms -- Deloitte & Touche LLP, Ernst & Young LLP, KPMG and PricewaterhouseCoopers -- handling the vast majority of public-company audits. He said this "intense concentration" isn't desirable, adding that regulators need to consider whether their rules are inhibiting competition in the field.

SEC Commissioner Paul Atkins, who also addressed the meeting, acknowledged that regulators were surprised by the cost of internal-control rules that took effect for the largest U.S. companies last year, and he said he hopes such costs will be lower this year.

The rules stem from the Sarbanes-Oxley Act, passed by Congress in 2002. They mandate that public companies make an annual examination of their internal controls related to financial reporting, subject to review by these companies' outside auditors.

The SEC is "at an early stage" in considering who should head the Public Company Accounting Oversight Board now that William McDonough, its former chairman, has stepped down, Mr. Atkins said.

Last week the SEC named oversight board member Bill Gradison, a member of Congress, as interim oversight board chairman. Mr. Atkins said Mr. Gradison, an Ohio Republican, could be in the running as a permanent chair "if he wants to be."

In repeated speeches, Dennis Beresford, former Chairman of the FASB, has called for simplification of accounting standards and guidelines.  For example see the following reference:
"Can We Go Back to the Good Old Days?" by Dennis R. Beresford, The CPA Journal --- http://www.nysscpa.org/cpajournal/2004/1204/perspectives/p6.htm 

December 6, 2005 message from Dennis Beresford [dberesfo@terry.uga.edu]

 National Conference on Current SEC and PCAOB Developments. His (Cox, the new Director of the SEC) talk is available at: http://www.sec.gov/news/speech/spch120505cc.htm 

He had three main messages:

1. Accounting rules need to be simplified. "The accounting scandals that our nation and the world have now mostly weathered were made possible in part by the sheer complexity of the rules." "The sheer accretion of detail has, in time, led to one of the system's weaknesses - its extreme complexity. Convolution is now reducing its usefulness."

2. The concentration of auditing services in the Big 4 "quadropoly" is bad for the securities markets. The SEC will try to do more to encourage the use of medium size and smaller firms that receive good inspection reports from the PCAOB.

3. The SEC will continue to push XBRL. "The interactive data that this initiative will create will lead to vast improvements in the quality, timeliness, and usefulness of information that investors get about the companies they're investing in."

A very interesting talk - one that seems to promise a high level of cooperation with the accounting profession.

The SEC web site has posted several presentations by members of the SEC accounting staff. These were all presentations at the AICPA SEC conference yesterday - the premiere financial reporting and auditing conference of the year. Scott Taub's (acting Chief Accountant) remarks are particularly interesting as they build on what Cox had to say in the areas of reducing complexity and making interactive data more available. Scott also spoke about fair value accounting and using professional judgment. His remarks are at: http://www.sec.gov/news/speech/spch120505sat.htm  . . . there are about ten other presentations on more detailed accounting and auditing matters also available at the SEC web site.

FASB Chairman Bob Herz' speech earlier today at the AICPA SEC conference is available at: http://www.fasb.org/herz_aicpa_12-06-05.pdf 

Bob builds on yesterday's comments by SEC Chairman Cox and argues that "continued progress on reducing complexity and improving the transparency and usefulness of reported financial information is imperative and consistent with our nation's longstanding commitment to the importance of high-quality financial reporting to the health and vitality of our capital markets and our economy." Bob calls for the FASB, SEC, PCAOB and all other interested parties to take "collective action to address these issues."

Denny

Jensen Comment --- Here's a related news item

SEC's Cox Wants Simpler Rules, More Competition for Accounting," by Judith Burns, The Wall Street Journal, December 6, 2005; Page C3 --- http://online.wsj.com/article/SB113381176660114298.html?mod=todays_us_money_and_investing

US-EU agreement on international cooperation --- http://www.iasplus.com/europe/0512useudialogue.pdf

Bob Jensen's threads on accounting standard setting are at http://www.trinity.edu/rjensen//theory/00overview/theory01.htm

Bob Jensen's threads on XBRL are at
http://www.trinity.edu/rjensen/XBRLandOLAP.htm

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I loved the Marx Brothers Analogy in This One

"Is This Any Way to Run a Railroad? You think you've got problems? Amtrak's got an overpaid workforce. Its trains and tracks are falling apart. Worse, the carrier's balance sheet is a flat-out mess," by John Goff, CFO Magazine, November 2005 --- http://www.cfo.com/article.cfm/5077873/c_5101083?f=magazine_featured

As Marx Brothers movies go, Go West isn't much. The aging comedy team was running out of ideas, and it shows: the plot is predictable and the gags are stale. Yet there is one memorable scene in the 1940 film. In it, the boys — desperate to keep a steam-powered locomotive chugging along — feed the entire train to itself, car by car, piece by piece, caboose to tender.

Management at the National Railroad Passenger Corp., better known as Amtrak, performed a similar sacrifice in 2001. Four years into an effort to wean itself from federal operating subsidies, the rail carrier was running on empty. Executives had already started diverting funds earmarked for capital projects to help plug operating holes. But even that wasn't enough, and soon, Amtrak's management began cannibalizing the railroad. Recalls Cliff Black, Amtrak's director of media relations: "We mortgaged everything."

Things got so bad that the railroad took out a loan on New York's Pennsylvania Station to cover three months of expenses. It was a move the U.S. Office of Management and Budget called "a financial absurdity equivalent to a family taking out a second mortgage on its home to pay its grocery bills." Eventually, Amtrak conceded it couldn't break even, and Congress continued pumping funds back into the rail operator.

The damage to the balance sheet had been done, however. During the five-year plan, the carrier's debt load nearly tripled, from $1.7 billion to $4.8 billion. Once dubbed the "Glide Path to Profitability," Amtrak's intended march to self-sufficiency is termed something else by current CFO David Smith. "I call it the slippery slope to hell," he says.

Since taking the reins last November, Smith has personally spent considerable time in purgatory — stuck awaiting vital federal funding for the carrier while politicians dither over the future of passenger rail service. "Amtrak's never had full support from any Administration. And it has no ongoing real capital budget," notes James Coston, chairman of Corridor Capital LLC, which specializes in finance and development for intercity and commuter rail systems. "So each year, they go up to Capitol Hill with a tin cup."

And that cup remains far from full. Last February, for example, the White House announced it intended to cut off Amtrak's billion-dollar-plus annual subsidy — which covers about half the railroad's total budget — unless the carrier agreed to a radical restructuring. Both the House and the Senate defied the Administration, calling for subsidies ranging from $1.17 billion to $1.45 billion for 2006 (the carrier generated $1.9 billion in revenues last year against $2.9 billion in costs). But the details have yet to be ironed out, and it's still unclear just how much money Amtrak will get.

Amid the revenue uncertainty, Smith must somehow pay down Amtrak's borrowings, upgrade its information technology and financial skills, and wring concessions from entrenched unions. He is also charged with mapping out long-term capital investments on the railroad's antiquated infrastructure — a tall order when you don't actually know what funds will be available to finance the repairs. And he must do all this under the scrutiny of an Administration whose purported goal, says Amtrak president and CEO David Gunn, is "to destroy Amtrak."

It is, in sum, a nearly impossible to-do list. But judging from his efforts so far, Smith has what it takes to defy long odds: steadiness, belief, and a certain imperviousness to the Coliseum crowd. Some observers say his first year on the job could be used as a case study for grace under fire. Says Coston: "I can't imagine a tougher job than being CFO at Amtrak."

Continued in article

December 6, 2005 reply from Bob Jensen

From the KPMG Audit Report on September 30, 2004 --- http://www.amtrak.com/pdf/04financial.pdf The Company (Amtrak) has a history of substantial operating losses and is highly dependent upon substantial Federal government subsidies to sustain its operations. There are currently no Federal government subsidies authorized or appropriated for any period subsequent to the fiscal year ending September 30, 2005 (“fiscal year 2005”). Without such subsidies, Amtrak will not be able to continue to operate in its current form and significant operating changes, restructuring or bankruptcy may occur. Such changes or restructuring would likely result in asset impairments.

************************

I guess I have to agree Paul that the difference between Amtrak and other businesses, like farmers, dependent upon government subsidies is largely semantic (rhetorical). In a sense, Amtrak is less like Fanny Mae since Amtrak's debt is not guaranteed by the Federal government. It is also less like the U.S. Post Office since Amtrak did sell equity (that has nearly been wiped out by huge deficits). Like the Post Office, Amtrak does negotiate directly with the government for appropriations to a particular business. But unlike the Post Office, I think Amtrak can set prices without an act of Congress.

The lines are indeed fuzzy between government enterprises, private enterprises directly subsidized, private enterprises indirectly subsidized, and the theoretical private firms that have no government subsidies. There may not be any such private firms in modern times since nearly every product or service is indirectly subsidized somewhere along the supply chain.

One possible distinction between public and private enterprises is whether the government is obligated to pay creditors off in full if the enterprise fails. I gather that this is the case for NC state universities, the U.S. Post Office, and Fannie Mae (even though Fanny Mae also sells equity shares). Debt guarantees are not assured in the case of Amtrak such that Amtrak is closer to being private in this context. In this context, classifying public versus private enterprises becomes a sliding scale as to what portion of the debt is guaranteed by the government. Pension guarantees cloud this issue since these are a form of insurance that enterprises must buy into to become partly covered.

I'm not certain where your argument bears much fruit if we don't have some distinction between public and private. If subsidies make every enterprise a government enterprise, wouldn't all businesses become government enterprises? It would not be helpful to have no definition of private enterprise since many equity owners and creditors can still fail and do every day in firms where the government does not guarantee repayment of all debt.

One problem of debt guarantees like we have in Fanny Mae and the Post Office is that managers of those companies can be tempted put their companies in extremely high levels of debt risk because creditors are always willing to loan to the hilt if the government guarantees repayment. Then cowboy managers might be tempted to borrow great amounts to pay for highly inefficient operating costs or make extremely high risk investments (as Fannie Mae did with billions invested in losing manufactured housing mortgages).

When I started this thread I mistakenly thought that Amtrak's debt was guaranteed by the government. What amazes me is how Amtrak is still able to borrow money to finance losing operations. Creditors (who are largely in Canada and France) must have faith that the U.S. government will not allow Amtrak to fail in spite of Amtrak's bleak future for ever earning a profit. Apparently the close association of Amtrak and government make it not like Penn Central in the eyes of lenders.

Bob Jensen

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White collar crime still is punished lightly

"Ex-Finance Chief At HealthSouth Gets 5 Years in Jail," by Chad Terhune, The Wall Street Journal, December 10, 2005; Page A3 --- http://online.wsj.com/article/SB113415352157818617.html?mod=todays_us_page_one

A federal judge in Birmingham, Ala., sentenced former HealthSouth Corp. finance chief William T. Owens, the star witness against company founder Richard Scrushy at his criminal trial, to five years in prison.

U.S. District Judge Sharon Blackburn expressed reservations at sending Mr. Owens, 47 years old, to prison, saying she believed Mr. Scrushy directed the $2.7 billion accounting fraud at the health-care company. Mr. Scrushy's trial ended in acquittal in June.

Friday, the judge called it a "travesty" that Mr. Scrushy wouldn't spend any time in prison in connection with the scheme. Mr. Scrushy and his lawyers have repeatedly denied participating in the fraud, claiming that Mr. Owens was the mastermind of the plan and hid it from Mr. Scrushy. In a statement, Mr. Scrushy said Judge Blackburn's comments were "totally inappropriate given that there was not one shred of evidence or credible testimony linking me to the fraud."

Frederick Helmsing, the lawyer for Mr. Owens, had sought probation, in light of Mr. Owens's extensive cooperation with the government investigation since 2003. Prosecutors requested an eight-year prison term.

Continued in article

Bob Jensen's threads on light punishment of white collar crime are at http://www.trinity.edu/rjensen/FraudConclusion.htm#CrimePays

HealthSouth's auditing firm was Ernst & Young --- http://www.trinity.edu/rjensen/Fraud001.htm#Ernst
 

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"Embedded Audit Modules in Enterprise Resource Planning Systems: Implementation and Functionality," by Roger S. Debreceny, Glen L. Gray, Joeson Jun-Jin Ng, Kevin Siow-Ping Lee, and Woon-Foong Yau, Journal of Information Systems, Fall 2005, pp. 7-28 --- http://aaahq.org/ic/browse.htm

Embedded Audit Modules (EAMs) are a potentially efficient and effective compliance and substantive audit-testing tool. Early examples of EAMs were implemented in proprietary accounting information systems and production systems. Over the last decade, there has been widespread deployment of Enterprise Resource Planning (ERP) systems that provide common business process functionality across the enterprise. These application systems are based upon a common foundation provided by large-scale relational database-management systems. No published research addresses the potential for exploiting the perceived benefits of EAMs in an ERP environment. This exploratory paper seeks to partially close this gap in the research literature by assessing the level and nature of support for EAMs by ERP providers.

We present five model EAM-use scenarios within a fraud-prevention and detection environment. We provided the scenarios to six representative ERP solution providers, whose products support "small," "medium," and "large" scale clients. The providers then assessed how they would implement the scenarios in their ERP solution. Concurrent in-depth interviews with representatives of the ERP providers address the issue of implementing EAMs in ERP solutions.

The research revealed limited support for EAMs within the selected ERP systems. Interviews revealed that the limited support for EAMs was primarily a function of lack of demand from the user community. Vendors were consistent in their view that EAMs were technically feasible. These results have a number of implications for both practice and future research. These include a need to understand the barriers to client adoption of EAMs and to build a framework for integrating EAMs into firm risk-management environment.

Bob Jensen's threads on ERP education are at http://www.trinity.edu/rjensen/245glosap.htm
Also see http://www.trinity.edu/rjensen/FraudConclusion.htm#ERP

Bob Jensen's threads on audit bots are at http://www.trinity.edu/rjensen/FraudConclusion.htm#ContinuousAuditing

 

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Study the Options When Time To Repay Those Student Loans," by Kelly K. Spors, "The Wall Street Journal, November 30, 2005; Page D3 --- http://online.wsj.com/article/SB113331374356009720.html?mod=todays_us_personal_journal

Many of last spring's college graduates will soon be facing an important decision: how to repay their student loans.

As their six-month loan-grace period nears an end, the biggest choice these graduates face is whether to consolidate all their federal student loans into a single loan at a fixed rate. Most financial advisers say that interest rates are likely headed higher and that locking in a rate is the best option.

Graduates must decide among a variety of repayment choices, including the ability to stretch repayment for up to 30 years. Lenders also are making it easier for student borrowers to adjust their repayment arrangements online. But some experts say that because student-loan rates are comparatively low, it could make more sense to repay other debt first while making the minimum payment on student loans.

Student loans under the government's popular Stafford program, which are the most common type of education loans, let students borrow up to a certain amount each year, based on their year in school. The loans can be made by various lenders and are backed by the federal government. Under government rules, the loans have rates that readjust each year, but can't exceed 8.25%. Repayment is initially scheduled over 10 years. Students also can take out private loans, which aren't subject to the same standardized terms, to cover expenses that exceed the size of their federal loans.

Rates on Stafford loans readjust every July 1. Students and graduates can consolidate their loans anytime before then to lock in the current rate, which is 4.75% for those still in school or in their grace period and 5.375% for those in a repayment period. The rates are among the lowest on record. By contrast, most banks' prime rate, a benchmark banks use for most consumer loans, is currently 7%.

For students holding other kinds of federal loans, such as Perkins loans that carry a fixed 5% rate for the life of the loan, the consolidated rate would be based on the weighted average rate of all the debt being combined. Repayments can be stretched out over various periods. But only students with loans totaling $60,000 or more can stretch repayment out to the maximum 30 years.

On top of lengthening the term, lenders also offer several monthly payment choices: Level repayment means paying a constant monthly sum over the loan's term. A graduated repayment increases monthly payments over time. And an income-sensitive repayment plan provides for borrowers to make monthly payments based on a percentage of earnings.

Many lenders, and the companies that sometimes service their loans, are making it easier for borrowers to change their payment schedules or make extra big payments -- even when monthly payments are automatically withdrawn from a bank account. Student lender Sallie Mae recently enhanced the "Manage Your Loans" feature on its Web site to allow borrowers to increase their payments in a particular month or to request a shorter term. Those scheduled to pay off loans in, say, 30 years, can request that they be moved to a 10-year repayment schedule, which would require higher monthly payments, says spokeswoman Martha Holler. The site also lets borrowers switch the type of repayment plan.

Other lenders also let borrowers make a one-time extra payment through their Web sites, or by mail. If you do that, it is important to tell the servicer to apply your overpayment toward the loan's principal -- not future interest payments, says Cheryl Resh, director of the financial-aid department at the University of California at Berkeley. "You want to make sure you're getting the most bang for your buck" by paying down principal.

If a tough financial situation has you craving relief on your student loans, you can usually get that, too. Just make sure to talk with your loan servicer before your loan goes into default and ruins your credit. You have two main options for postponing payments: Borrowers with certain economic hardships -- or who are back in school -- can qualify for "deferment" under federal rules, while "forbearance" is at the lenders' discretion.

There may be good reasons to hold off retiring student loans, some experts say. Many graduates have locked in rates below 5% in the past few years. With rates so low, it is often wise to pay off debt with higher interest rates first and even start funding a 401(k) or build up some emergency savings before worrying too much about repaying student loans fast. And for many just starting out, saving for a down payment on a first home is a higher priority than paying off college debt. Still, student loans are real debt, and borrowers can reap some nice savings by paying them off sooner rather than later.

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Economics is the only field in which two people can get a Nobel Prize for saying exactly the opposite thing.
 --- http://netec.mcc.ac.uk/JokEc.html

Two Leading Economists in a Ten Rounder With Gloves Off:  Harvard Versus Princeton

"Novel Way to Assess School Competition Stirs Academic Row:  To Do So, Harvard Economist Counts Streams in Cities; A Princetonian Takes Issue Charges and Countercharges." by Jon E. Hilsenrath, The Wall Street Journal, October 24, 2005; Page A1 --- http://online.wsj.com/article/SB113011672134577225.html?mod=todays_us_page_one

Five years ago Harvard's Caroline Hoxby, a rising star in economics, wrote a paper that reached an unusual conclusion: Cities with more streams tended to have schools with higher test scores.

Today her work is a widely cited landmark in the fierce national debate over free-market competition in public schools. And it's at the center of a bitter dispute with another economist that is riveting social scientists across the country.

Her adversary is Jesse Rothstein, a young professor at Princeton, who says her study is full of flaws. In a rebuttal to her critic, Dr. Hoxby wrote of his work: "Every claim is wrong." She has also accused him of ideological bias. Dr. Rothstein, in turn, says she resorts to "name-calling" and "ad hominem attacks" on him.

The unusual spat has put a prominent economist in the awkward position of having to defend one of her most influential studies. Along the way, it has spotlighted the challenges economists face as they study possible solutions to one of the nation's most pressing problems: the poor performance of some public schools. Despite a vast array of statistical tools, economists have had a very hard time coming up with clear answers.

"They're fighting over streams," marvels John Witte, a University of Wisconsin-Madison professor of political science and veteran of a brawl over school vouchers in Milwaukee in the 1990s. "It's almost to the point where you can't really determine what's going on."

Milton Friedman, the Nobel Prize-winning economist known for his free-market views, proposed 50 years ago that to improve schools, parents could be given vouchers -- tickets they could spend to shop for a better education for their kids. He theorized that the resulting competition among schools would spark improvements in the system. Free-market advocates loved the idea. Teachers' unions hated it, arguing that it could drain resources from some public schools and direct resources to religious institutions.

Research on these programs turns up evidence of benefits from school choice. But it hasn't proved strongly convincing, and testing the hypothesis is anything but simple. In the mid-1990s, researchers battled over how to interpret studies of voucher use in Milwaukee. In 2003, they tried to evaluate voucher experiments in New York and ended up squabbling over the right way to decide if a child was African-American. Last year, in assessing charter schools -- institutions that are publicly funded but not bound by traditional rules -- they argued over how to take into account differing backgrounds of the children who attend.

Analysts have searched as far away as New Zealand for evidence about the effects of competition in education -- and disagreed about what was found there, too. Now there is Hoxby vs. Rothstein.

Dr. Hoxby, 39 years old, is one of only two women tenured in Harvard's economics department, a distinction she achieved just seven years after earning a doctorate from Massachusetts Institute of Technology. Other universities, such as Stanford, have tried to lure her away. Harvard, in turn, has given her a prestigious endowed chair.

Although her father, Steven Minter, was an official in the Carter administration Education Department, she has become a favorite in Republican circles for producing statistical evidence that competition improves schools. "This is a person who is smart, who is logical, who is committed and who is dedicated," says Rod Paige, President Bush's first Secretary of Education. Dr. Hoxby also is a distinguished visiting fellow at the Hoover Institution, the right-leaning research center affiliated with Stanford.

Dr. Rothstein, 31, is the son of Richard Rothstein, a former textile-union organizer who's now a lecturer at Columbia. Father and son have both worked closely with the left-leaning Economic Policy Institute in Washington. The son got interested in the streams paper while studying for his doctorate at the University of California, Berkeley. He is now an assistant professor at Princeton, not yet eligible for tenure. His Berkeley thesis adviser, David Card, describes Dr. Rothstein, who had majored in math as a Harvard undergraduate, as "tenacious" and having "very good technical skills."

In her 2000 paper, published in the prestigious American Economic Review, Dr. Hoxby explored competition among public schools. She noticed that some metropolitan areas, like Boston, had dozens of school districts, while others, such as Las Vegas, were dominated by just one. She reasoned that if pro-competition economists were right, school systems with many districts should produce better results, because parents in those cities would have more choices about where to live and educate their children, creating a more competitive environment.

To test this notion she might have simply counted the number of school districts in cities. But there were factors that muddied the waters. Sometimes the quality of the school districts influenced their number. That is, in some cases, it appeared cities had numerous districts partly because some were bad -- so bad they couldn't be closed or merged with others. It was the kind of chicken-and-egg problem that often trips up economic research.

Dr. Hoxby tried to find a way around this. She noticed that the number of school districts seemed related to geography. Streams were natural boundaries around which districts were formed many years ago. Cities with lots of streams had more school districts than cities with few streams.

An Opportunity

Testing a hypothesis in economics isn't as straightforward as, say, testing a drug, where researchers can randomly assign some subjects to receive a placebo. Many economists believe they can approach scientific rigor, however, by taking advantage of random events like draft lotteries and judicial assignments. For Dr. Hoxby, streams offered such an opportunity: Cities with lots of streams had been randomly chosen by nature to have more school districts and more school competition, while cities with few streams were naturally home to fewer districts and less competition.

"By using the variation in the number of school districts in a metropolitan area that is driven by streams, we can isolate the effect that interests us: the causal effect of more districts on achievement," she said in an interview via email.

When she found that metro areas with more streams tended to have more districts, and also higher student achievement, many academics thought she had come up with an ingenious way of testing Dr. Friedman's competition thesis. "Caroline had a great idea with that paper," says David Figlio, an education economist at the University of Florida. "It is incontrovertible that it was a brilliant insight."

Dr. Rothstein says it doesn't stand up to scrutiny. He makes several technical challenges, but his main attack is on the way the author counted streams.

A problem she faced at the outset was that some streams can affect more than school-district borders. Large, navigable ones affect commerce and wealth in an area and the kind of population it attracts -- influences that could distort her test. Small streams wouldn't have this problem, Dr. Hoxby said. She divided her streams into larger and smaller ones and entered them into her equations separately to make the distinction clear. Studying detailed maps published by the U.S. Geological Survey, she measured dimensions of water bodies in hundreds of metropolitan areas.

. . .

The rejoinder irked his defenders. "Her nasty, vicious response is really about shutting down debate," said Lawrence Mishel, president of the Economic Policy Institute. The group has sparred with her before. A book co-written by Dr. Mishel and Richard Rothstein, Jesse's father, dedicates a section to challenging her work on charter schools.

In an email, Dr. Hoxby responds that "EPI's work is funded by unions, and the teachers' unions are openly opposed to charter schools for reasons of self-interest." EPI says it gets 29% of its funds from unions.

Continued in article

Some Very Confusing Energy Economics

"Exelon Rex Will power deregulation in Illinois benefit consumers or utilities?," by Arthur B. Laffer and Patrick N. Giordano, The Wall Street Journal, December 1, 2005 --- http://www.opinionjournal.com/cc/?id=110007618 

Any minute now, an administrative law judge will recommend a method for Illinois electricity deregulation. His recommendation could defend the interests of Illinois consumers, or it could help an Illinois energy company pull a fast one.

In 1997, as part of a move to deregulate Illinois's retail electricity market, Exelon Corp.'s utility subsidiary, Commonwealth Edison Co. (which serves the northern third of Illinois), and other Illinois utilities were barred from increasing retail electricity rates for 10 years. Now, with the end of the rate freeze in sight, ComEd has proposed an auction market for electricity in what has heretofore been a highly regulated industry. But before we describe ComEd's auction proposal, a little background goes a long way to illuminate just why ComEd's proposal is what it is.

ComEd is a wholly owned subsidiary of the Exelon Corp., which also owns Exelon Generation. Exelon Generation is a huge generator o