Why Won't Someone Think of the Children?! ;-)

The typical debate about K-12 education starts almost exactly as follows:

"Have no illusions. INSERT PROPOSED CHANGE HERE will gut public schools.  Don't we want ALL our children in America to have a good education?"

Almost all Americans fail to understand education is primarily a state and local function.  Why federal dollars are involved at all is an excellent question no one really asks.

I've volunteered at afterschool programs funded by federal dollars, sometimes called Title I schools. Most of the money goes to existing teachers, not kids. (I was an unpaid volunteer who decided to continue volunteering after teaching a financial literacy class affiliated with Junior Achievement.)  The goal seems to be to reserve as much money for existing staff as possible.  A principal in a different California district told me when she considered using general funds to expose students to organized activities by outside nonprofits, a tenured teacher complained the funds should be used first for teachers, and teachers should object or file a union complaint.

In any case, the afterschool program--funded with federal dollars intended to help schools with impoverished children bridge educational gaps--would hand out juice boxes and small snacks like wheat crackers or leave them out for children to take as needed.  In some schools, the kids play videogames. In one middle school, I ran into two unsupervised kids in a gym. When I mentioned I found two kids in the gym, the supervising administrator became angry with me for being alone with them, even though the gym should have been locked and the kids shouldn't have been in there in the first place.  When the gym was supervised, the kids played in a haphazard fashion, sometimes with deflated balls.  (By the way, I live about 10 miles from the school, and a single family home costs around 700,000 USD in the district--about three times the nationwide median price.) In short, federal dollars used for education and nutrition are sometimes babysitting programs with no educational value whatsoever.

92% of all K-12 funding comes from state and local sources, and taxpayers are no longer as tolerant when it comes to inefficient federal spending. Why should taxpayers in Kansas, Indiana, and Minnesota pay millions each year to California teachers for afterschool babysitting programs that do nothing to improve educational outcomes? And why can't states do these programs themselves instead of relying on slush funds from nationwide taxpayers? If a program is important to local voters and has mostly a local impact, shouldn't they fund it with their own tax dollars or increase taxes as necessary? (I suppose they could borrow money, which would be a great opportunity for Congress to pass a law mandating all local government programs be funded at least 95% by local or state taxes and not debt--to the extent the local government receives any federal dollars.) [Update: I just realized my proposed Congressional check on states won't work. States will just shift state spending obligations to the federal government, which has greater and almost unlimited borrowing capacity.  Instead of issuing state bonds at higher and higher interest rates--essentially stealing from future generations--states will just ask the feds for more money and then horse-trade with more fiscally-conservative states to get that money. For example, a California legislator needing x dollars for y and z program would tell Kansas, Nebraska, and Iowa that they can have the next five years' defense contracts in their states, as long as they put a provision in the defense bill giving California federal grants for x and y programs.  Without integrity and some sense of long-term consequences, no law or proposed change will fix substantive problems. Sigh.]

The consequences of corruption, which include inefficient government spending, can unfortunately include wholesale elimination of programs. This doesn't preclude administrations from instituting new programs that accomplish the goal more efficiently and without employing the formerly corrupt employees. While no one enjoys change and new responsibilities, without them, governments will stagnate.  Governments that fail to adapt to change will promote protectionism and a desire for the "good ol' days," which are never as good as anyone thinks.  What is giving rise to voters' lower tolerance for inefficient government programs? (aka "compassion fatigue") 

1.  Lessened accountability. Anyone familiar with California's government unions knows they promote systemic corruption.  Some police officers use excessive force, and even when the evidence is on camera, the worst that follows is paid vacation or reassignment.  Why?  Because police unions have passed laws defining "excessive force" in their own favor.  (What's the definition of "sex" again, Mr. Clinton?) When you can invent your own dictionary, the law can't touch you.

Police unions and their lobbyists know that protecting the worst amongst their members--it's a fraternal order, after all--causes the general public to mistrust all cops, even good ones.  Incredibly, they don't care.  They assume with enough marketing and political influence, they will always be able to protect themselves--even at everyone else's expense.  When you don't know whether the officer who just pulled you over has used excessive force and gotten away with it, you're not going to vote to increase tax dollars to the police.  You won't trust any of them.  From the perspective of political lobbyists, however, it doesn't matter.  You can complain, but dispersed voters, even if right, cannot effectively counter political and legal moves by groups, even if wrong.

It's the same concept with teachers--who only teach about 158 to 180 days a year in California.  Many of them refuse to do volunteer work for the benefit of the school, which reduces the school's role as a positive influence on the community.  In the past, if Johnny was falling behind, maybe a teacher tutored him one-on-one for an additional 15 minutes, without pay.  Today, teachers unions counsel members not to do any volunteer or additional work during contentious budget negotiations.

Such tactics aren't new--California's teachers unions campaigned against one of the best teachers in the world and drove him back to his native Bolivia ("Faculty colleagues and union officials complained that his extra hours and large class sizes set unhealthy precedents for other teachers and violated existing work agreements.")  They, too, have passed laws favoring themselves over all other taxpayers, making it almost impossible to shut down underperforming schools or to eliminate even the most egregious pension loopholes.  Meanwhile, teachers' pensions grow at guaranteed rates, regardless of actual tax revenue. Incredibly, some teachers still wonder why the public has turned against them.

2.  Reduced accountability isn't leading to better performance or results.  One potential upside in protecting government workers is some of them will be encouraged to try new programs or take more risks.  That hasn't actually happened.  California still doesn't have universal pre-school, despite guaranteeing K-14 education receive at least 40% of each year's budget (see Proposition 98).  Educational outcomes are still primarily determined by two factors: 1) parental educational levels; and 2) parental income levels. ("America: the worst caste system in the world, but with new and improved propaganda"?) 

Worse yet, most 6th to 12th grade programs don't teach in ways that promote better analytical ability or better citizenship. Americans are likely to learn WWI started when Archduke Ferdinand was assassinated, but such knowledge is worthless without some overall context, including incorporating modern information such as NATO and internal independence movements. In short, not only is critical thinking or logic absent in K-12 courses, even the material taught is useless because it usually lacks any connection with modern-day knowledge or practical skills.

3. As governments have become less accountable, businesses have become more responsive to consumer needs, giving corporate leaders more credibility than politicians. With the exception of a few outliers, most Americans will sooner read a book by Nike's CEO or a professional athlete than any politician not named Obama.  When you think of prior leaders like Eisenhower and Kennedy--people who captivated the entire world--this shift from political to corporate power is a dramatic change. How did it happen?

Globalization forced businesses to compete and provide individually-tailored solutions while governments reduced competition--and therefore accountability--through gerrymandering and other legal mechanisms. While businesses were behaving more nimbly, American voters forgot their political systems' numerous checks and balances allow only incremental change.  In other words, once a political change is enshrined in law or through vested power, it is as close to permanent as one can get.  Once vested, power removes some portion of a country's political flexibility and its ability to absorb anything radically new--an issue for anyone who believes America's economic, social, and innovative engine runs on immigration and tolerance.

To avoid reform and making hard choices, governments--as well as corporations--have been relying on debt to prop up unsustainable legal and benefit structures that make Jim Crow's "separate and equal" look tame by comparison.  (Say what you want about Southern racists, but even they didn't argue that "separate and unequal" was defensible, like government unions are doing now with their different compensatory and disciplinary rules for government workers.)

Corporations and real estate developers have relied on debt, too, but have usually done so to facilitate new products or changes (moving to the cloud, new condos, etc.).  In contrast, governments have used debt to make change more difficult and to support separate and unequal legal structures.

4. The above phenomena have led to ineffective remedial responses.  This is to be expected, because remember: America's political structure only allows incremental changes because of its numerous checks and balances, which generally operate against non-military governmental overreach but also against removing vested interests that harm the public trust.

On the federal level, governments have responded by trying to reduce expenses and costs as much as possible--without regard to quality.  One way to reduce expenses, given the lack of fiscal checks and balances within most government entities, is to hire contractors.  Yet, even this approach is no longer working, because most businesses now understand their goal is to submit a low bid then increase costs over time through negotiations and add-ons.  In other words, governments have made internal hiring too expensive because of unsustainable benefits and no real incentives for timely delivery, forcing them to rely on more efficient outside workers, who themselves have become corrupt over time. (Study private prisons if you're curious for details.)  Also, even if costs are kept in-line, the service under contract might be so clunky, it forces consumers to rely on costly experts to navigate the system. (Talk to anyone who's navigated the Covered California website for more details.)

Bottom line: governments are no substitute for culture.  If your culture is filled with hubris, inefficiency, unsustainable legal structures, and a lack of critical thinking and compassion, your government won't be able to do anything.  Anyone who can set up private or external systems will do so--if only out of a desire to get things done.  When this self-segregation inevitably occurs, people stuck in the mainstream will complain, but in America, only incremental change is possible, so individual complaints, regardless of merit or veracity, will generally go nowhere.  Society will fracture and eventually decline as the best and brightest move away or find more accountable systems that allow them to prosper.  And that, boys and girls, is why every empire eventually collapses or becomes a military dictatorship, where some force feeds off of dissatisfaction and overrules all established rules and opposition, especially minorities.  In short, it's a scary time to be an individual in America.

"Civilizations die from suicide, not by murder." -- Arnold Toynbee

© Matthew Mehdi Rafat (2017)

Bonus: I keep saying I'm going to write more about people and non-economic culture, but you can't really do that in America.  The average American in 2017 is in debt, more uptight than almost any other culture, hasn't read more than two books in the past year, and is generally unaware of his or her exposure to constant propaganda. (80% of the TV commercials I recently saw were military-related and for soda and alcohol.  The alcohol commercial, for a low calorie beer, featured semi-professional athletes engaged in vigorous exercise.)

The most interesting Americans I've met in the last 22 years are immigrants or ones who have traveled to at least 10 countries starting at a young age.  If the most interesting Americans are the ones exposed to non-Western cultures, perhaps the best places to study culture are outside the "West."

Pro tip: if you are enamored with "Western" life but desire a bit more soul, try Buenos Aires, Argentina. If money isn't a concern, visit Santiago, Chile.

Flashback from 2010: https://willworkforjustice.blogspot.com/2010/09/teachers-unions-running-california.html 

Consequences of Housing Inflation Policy in the U.S.

From OECD 

The above chart compares the types of countries' 2015 financial assets.  More specifically, it shows the percentage of cash (currency and deposits) held by households as a percentage of overall wealth.  You'll notice the U.S. is an outlier, because most Americans have their life savings in their home equity. From the Federal Reserve, on housing before the 2009 financial crisis:

[H]ousing wealth of U.S. households at the end of 2008 was 25.4 trillion dollars. Housing wealth is about one half of total household net worth (which is 52.9 trillion dollars), and is larger than the Gross Domestic Product (14.4 trillion dollars). Moreover, since financial wealth is more unequally distributed than housing wealth, housing wealth accounts for almost two thirds of the total wealth of the median household.

Housing as the driver of America's savings vehicle is no accident.  Tax policy guarantees housing prices will always increase absent extraordinary circumstances. In fact, tax policy is so potent in this regard, what brought about the 2008-2009 financial crisis wasn't some unexpected event but the overuse of this magical money-making machine.  (Like most sure things, the main threat is overloading and overextension of the thing itself.)

The issue isn't just the well-known mortgage tax deduction, which cost the government about $70 billion in 2013--it's the way it favors banking dependency and excessive borrowing.  You can deduct all of your mortgage interest up to $1 million in principal on the home in which you live, which means banks and buyers are incentivized to borrow as much as they can up to that limit.  By setting a limit by fiat, the government has encouraged everyone to game the system up to that limit (a corollary to Goodhart's Law).  What's worse is the government compounds the problem by guaranteeing the borrowed money indirectly through agencies like Fannie Mae and Ginnie Mae.  Meanwhile, homeownership rates in the U.K. and Canada are similar to the United States, even though the first two countries don't allow such a tax loophole, er, deduction.  (Anything that allows you to minimize your taxes is a "loophole," but if the government likes a loophole, it'll call it a deduction to make it sound nicer and to encourage its use.)  Why set up tax policy that confers so much power to the banking system?

First, in theory, it makes sense to support home ownership.  Owning a home is usually a long-term decision that creates more interest in sustaining your surroundings.  The reality, however, is different--as cities have become larger, community becomes difficult to achieve, and most Americans tend to be private folks anyway--they may bring an apple pie to a new neighbor, but unlike many other countries, an invite into one's home is rare.

Second, by having so much wealth held illiquid and therefore captive and subject to fees (broker fees, closing costs, etc.), which discourages impulse moves, the government can manipulate its citizens' financial freedom and also its currency strength.  In contrast, in other countries, especially China, residents can remove their wealth--such as stock market gains--and transfer it elsewhere, such as Canada (Vancouver) or the United States (Cupertino, CA).  Such options can create havoc for governments, because not only do they lose wealth that supports their own currency, but the wealth they helped created is now captive in another country's currency and protected by law, making its return more difficult.

Third, if wealth is illiquid, easily tracked, and tangible, it can provide stable tax revenue.  How does this help the average resident?  Under a cost-benefit analysis, it doesn't.  In California, even after passage of a proposition that limited the government's ability to raise property taxes, some local governments still tried to over-estimate housing prices for purposes of increasing the applicable tax revenue or granted more developer permits than usual, harming quality of life by not accounting for public transportation or improved roads or new highway lanes.

At the end of the day, globalization requires more flexibility, more consumer disposable income, and more individual labor mobility.  Meanwhile, America's tax code continues to prioritize the exact opposite.  What could possibly go wrong? (Again?)

Bonus: the key to currency strength is reserves, and when your non-gold and non-natural-resource reserves are guaranteed to grow as well as be held captive, the (financial) world is a reserve bank's oyster.  In normal economic circumstances, if you want to make your exports more attractive, you can weaken your currency by issuing more debt; if you want your currency to remain strong, you issue less debt or debt at ultra-low interest rates.  In America, however, you can have the best of both worlds--you can issue more debt, keep it captive in housing, and create tax policies that ensure the debt becomes an asset at some point.  How does this captive wealth, which allows greater government manipulation of both currency and exports/imports, help sustain a growing middle class? Well, it doesn't.  It actually leads to more boom-bust cycles and debacles like the 2003 Cancun WTO trade failure and its continuation. Rendering the sale of essential items like housing and education on the financial sector's willingness to issue debt is a recipe for short-term gains and long-term disaster.

Worse, by ensuring both private and public banking entities have disproportionate influence over the economy, you cede power to the financial sector in the absence of almost perfect regulation and enforcement.  What does the financial sector do in exchange for such power, given that it doesn't make anything?  In theory, it exists to encourage stability, predictability, and the integrity of economic transactions.  Unfortunately, with pro forma accounting and conflicts of interest within banks, it doesn't even do accounting or valuation well.  In short, America's current tax system takes a sector that should be the designated driver in the economy and makes him or her into a Formula One fan itching to get into the driver's seat.  Given the global nature of finance, it's not just America that falls prey to such problems--google "Deutsche Bank hidden losses swaps" for more. 

You Suck, Denver TSA

The TSA exists only because America overreacted post-9/11 and decided to go full metal hard-on while almost every other country in the world decided to wait and see, at least with respect to the body scanners now standard procedure in American airports. 

Many major international airports don't have a single new scanning machine--they've decided to invest in infrastructure, local police, or healthcare instead--and when they do have them, they make it easy for passengers to opt out.  Canada's Toronto airport had about 10 passenger lines but only one of the "new" machines. They rely on the same machines used pre-9/11. In Toronto, the "new" machine is only for "secondary" screening, and even then, the personnel ask if you want to "opt out" and get a patdown.  I was "randomly selected" for secondary screening and asked to opt out.  I was immediately given a patdown by a male agent in full view of my luggage. Because secondary screenings are less common under Canadian standard protocol, it's done as efficiently as possible.  

At Denver International, it took 5 minutes just to find a TSA screener to do a patdown while my luggage was out of my sight at the other end of the conveyor belt.  After a screener finally showed up, it took another 9 minutes to do the actual patdown. He blamed the inefficiency on me opting out as if he was doing me a favor rather than inconveniencing me by being inefficient. Either he doesn't understand how a waiver works with respect to the 2 minute spiel (short version: I'm going to molest you now) or not customer-savvy to explain upfront that the TSA should have written waivers to save experienced passengers time.  

The supervisor was worse. She actually said, "We're in charge" and "You do what we say." When I remarked it sounded like something the "SS would say," she looked confused. (One has to wonder--if the Nazis did take over airport screening, how would they do it differently than the Denver TSA?) 

The TSA has received flak for its handling of travelers who “opt out” of its backscatter radiation body scanners but they appear to have doubled-down under the theory if the opt-out procedure is as uncomfortable as possible, people won't opt out.  A few years ago, I asked a medical doctor and a PhD in radiation physics what they thought about the risk of radiation from the airport full body scanners. Both doctors indicated there wasn't enough information to make a valid judgment about the safety of the full body scanners. Although we receive radiation in small doses almost every single day, much of it is “non-ionizing.” A cell phone, for example, has non-ionizing radiation; however, the TSA scanners use ionizing radiation. Ionizing radiation can alter a person’s cells to the point where the cells cannot recover. In contrast, non-ionizing radiation will jumble or vibrate your cells but not permanently alter them. 

Science aside, what bothers me most about the TSA is its inability to understand a) the agency is routinely castigated for being totally incompetent; b) pissing off taxpayers by being inefficient or stupid is not a good way to get them to pay more taxes (and certainly not 8 billion USD annually); and c) the way the TSA gets paid is mostly by other people's taxes. 

Much has been made of "makers vs. takers," but the reality isn't too far off: most non-research government positions do not sell or produce anything, so they derive their legitimacy by facilitating a better life for the general public.  Such facilitation could be in the form of increased safety (competent police officers); greater accountability (investigations into false advertising); or some other check and balance needed for an efficiently functioning society (honest tobacco research).  

The minute government employees lose integrity or lack accountability, they become worse than useless. Not only are they taking money that could otherwise be used for productive activity or go into your pocket to spend as you see fit, they're being paid to interfere in other people's lives in ways that make their lives worse.  In contrast, someone who sells 200,000 USD in software licenses doesn't need to show anything else to justify his or her salary because the transaction was voluntary, subject to competition, and presumably needed or wanted by the buyer.  That's basically the "makers vs. takers" argument, except that good government employees--if they are efficient and do their jobs with integrity--can argue they are worth more than their salary because they increase trust and accountability and lay the seeds for future success (an excellent, smart public school teacher is probably worth more than what he or she is being paid). This is why I keep arguing we need to stop focusing so much on improving AI and machines and try to perfect a performance evaluation system that is objective and fair for government employees.  

In any case, somehow, the TSA--while taking 8 billion USD every year--manages to be incompetent at everything except pissing off travelers. Listen, I get it--America overextended itself post-9/11, and lower-level military veterans who were taught mainly to handle weapons and security need a job when they come back.  Still, why tolerate total incompetence AND crap customer service?  Why not try to be competent, efficient OR passenger-friendly so you don't create the kind of backlash that leads to voters and citizens turning against their entire government? 

The TSA screening process isn't even standard across America, which is frightening when you understand the whole point of having a federal government is to standardize national processes, thereby promoting national unity through nationwide predictability. Otherwise, why not let states, which are generally more accountable except for California, do it? (By the way, how can McDonald's manage to standardize its procedures worldwide--excepting the sometime addition of automated ordering machines that make the customer experience better--but the TSA can't manage to be consistent in its own country?) 

When I've complained about not being able to see my wallet and personal items while waiting 5 minutes for a TSA screener, one TSA agent told me to keep my luggage with me until the screener showed up.  I like that idea, but I don't get that option in most airports.  Most TSA agents tell me to put my luggage, passport, laptop, and wallet through the conveyor belt so I can pass the initial security check under the rationale that if a problem is found, they can deal with it right then and there as I wait for the screener. The wait times are all over the place but usually last about 5 minutes, plenty of time for someone else to steal any of my items on the other side of the conveyor belt.  

In Denver, the screener argued standard procedure required him to say his opening spiel despite my oral waiver and willingness to sign a written one.  Yet, he added items I hadn't heard in other screenings, such as needing to keep my hands up for 4 minutes straight. (Was it retaliation for asking him to waive the spiel?) 

We need airport security, but we need it done efficiently and with common sense and respect.  In the meantime, I'll be avoiding Denver airports.  Why experience excessive turbulence--standard for Denver flights because of its elevation and location--and terrible customer service? 

I should say it wasn't all bad.  The police officer called by the TSA supervisor--in an attempt to intimidate me--was completely professional. Overall, I had a good time in Denver.  I was going to publish something that would help other travelers, but after my TSA experience, I won't be writing that piece.  You're on your own when it comes to Denver.  

Bonus: Police officers, unlike TSA screeners, can argue they're entitled to greater obedience from the public because officers often don't know the people they encounter; don't know the person's record, if any, until they get an ID and run a check; in a car stop, even with a license plate check, the driver may not be the owner of the car, and the police cannot see the person's hands until a closer examination to determine a threat level; and they haven't had the benefit of already screening the taxpayer's passport and luggage. 

A TSA worker, in contrast, has already had the benefit of multiple screenings and checks before the patdown, especially if the passenger is a frequent flyer; at the time of the patdown, the passenger is without access to luggage or unknown material; and the agent can see the passenger's hands. In addition, the passenger, unlike the TSA worker, has an immediate deadline to meet usually involving financial loss if missed, creating incentives to cooperate with competent agents. In other words, the presumption should go to the passenger, not the TSA screener, and the TSA needs to be as efficient as possible to justify its existence. At 8 billion dollars a year, the American public deserve better. 

Update on June 2017: Ft. Lauderdale TSA, immigration, and customs employees were all professional and efficient.  Why?  1) The cost of living there is lower than larger cities, making a federal salary and benefits more attractive.  Whereas a SF or LA or NY TSA or airport worker might see a TSA job as a last resort or temporary stop, a Ft. Lauderdale employee is being paid competitively; 2) Ft. Lauderdale's economy depends heavily on tourism, creating major disincentives to annoy travelers.  Even in Cuba, where almost nothing works and customer service is non-existence outside touristy Old Havana, Havana's airport was run reasonably well. Same concept--when an airport is in a city that relies on tourist dollars, it cannot afford to annoy tourists. 

America's dependence on gov security jobs like the TSA to lower the unemployment rate, especially for uneducated Americans, provides perverse incentives to make Americans afraid and to exaggerate terrorism threats.  "We're protecting your freedom and lives" sounds a lot better than "We can't figure out how to create meaningful jobs, especially for men without college degrees, so we're going to use a one-off event like 9/11 to divert billions into useless 'security theater.'"  Stay tuned for this news report on violence in other countries... 

Why is Media Dead? It's the Deadline.

By now, some of you have read my recap of Disney's 2017 shareholder meeting.  As I was leaving the meeting, I noticed an L.A. Times reporter taking one short interview while recording with his mobile phone.  I said I was from California, too, and asked him what he thought of Iger's half-arsed response to my question about unpaid student-athletes.  He brushed me off, saying he had a deadline to meet and could only interview one person.

I later looked at his "reporting" of the event.  Not a single thought-provoking sentence existed.  Even where the CEO had whiffed, the reporter complimented Disney's CEO for taking an array of diverse questions. Most of his "work" included tweets during the event and a few short articles published later serving as indirect advertising for Disney's upcoming movies.

I should have known better--the L.A. Times is in Disney's backyard, and it's doubtful Disney would advertise with it if the Times published any criticism.  As for the reporter himself, his prior work involved the seedy underbelly of becoming "famous" in La La Land.  His significant contributions to the annals of knowledge were revelations that 1) talent agencies require photoshoots and other expensive portfolio work, often steering clients to favored vendors; and 2) when paid from modeling or other shoots, the money is sent to the agent in escrow rather than the actor directly, allowing opportunities for fraud.  In other words, no real expertise in economics; media programming; and the stock market.  Throw in immediate deadlines with a lack of expertise on the topics being covered, and you can see the problem: reporters regurgitate content in ways that promote advertising opportunities, eyeballs, or consumer demand rather than substance.

People wonder why American democracy is in decline or no longer working.  It's not that hard to figure out.  Why read anything in mainstream media when it's almost all pablum and when the mainstream "opposition" is comedy that mocks rather than provide substantive knowledge?  It's as if we never really left good ol' England.  The media, government, and multinationals are still holding court over the peasants, and the jesters are the only ones able to tell the truth.

Bonus: "40% of the people in the U.S. read one book or less last year." -- Steve Jobs in 2008.

And yet, almost every kid has read Harry Potter.  It's not that people don't like to read--they just don't like reading crap.  

Disney's Annual Shareholder Meeting (2017)

Disney shareholder pin-- from Beauty & the Beast

Disney held its annual shareholder meeting in Denver, Colorado on March 8, 2017 at the Colorado Convention Center.  Shareholders were treated to coffee, tea, and bottled juices, but no food or pastries. (It's possible D23 members had a better selection after the regular shareholder meeting.)

Shareholders could also take pictures--available later at www.shareholderphotos.com--with characters Moana, Mickey Mouse, Captain America, and two Star Wars stormtroopers.  The stormtroopers seemed to be the most fun, making authoritative comments like "Affirmative," "Stand there," and "Let me see your badge."

Robert "Bob" Iger, Disney's CEO, opened the meeting in a suit and no tie, reading from a teleprompter until the shareholder proposals and Q&A session.  He expressed optimism about Shanghai Disneyland, which opened in 2016, the result of a "17 year journey."  He then lauded Disney's successful movie franchises, listing four films topping $1 billion each in box office revenues. On the matter of Disney's corporate image and its desire to be a "stellar corporate citizen," Iger mentioned Disney had added 30,000+ jobs in the U.S. since 2005; hired 8,000 military veterans since 2006; and donated $40 million to children's hospitals.

Throughout the meeting, Iger showed several videos, including ESPN clips featuring Denver and many other sports teams; a Disney movie mashup; and extended scenes from Beauty and the Beast (it's a musical!) and Guardians of the Galaxy 2.  The most anticipated clips were from Star Wars, The Last Jedi.  After presenting the end of the most recent Star Wars film, The Force Awakens, shareholders saw a very short clip of Luke accepting the lightsaber from Rey and another short clip of scattered one-second scenes from The Last Jedi.

The Last Jedi will be released in December 15, 2017, with two more Star Wars films already in the works. Fans of the franchise will be interested in knowing Iger expressed sorrow over Carrie Fisher's death and mentioned two Star Wars theme parks, including one where visitors will be able to pilot the Millennium Falcon.

After his prepared remarks, Iger progressed to shareholder proposals. The main ones involved 1) greater proxy access with respect to influencing the composition of the board of directors; and 2) greater transparency in Disney's lobbying efforts and its influence over trade associations.  Regarding the first item, some background: regular shareholders, even if they pool their votes together, have an extremely difficult time under existing rules putting anyone on the board.  The proposal would make it easier for "regular" shareholders--as opposed to hedge funds and insiders--to put more than two directors on Disney's board.  After all, it "takes more than two directors to change the corporate culture."  Disney's rebuttal is that it's not a good idea to spend too much time battling outside or regular shareholder representatives who may not know much about Disney's operations or business.

Regarding the second proposal, Disney doesn't issue a comprehensive report detailing its lobbying efforts, its lobbying payments, or its work through trade associations like the Chamber of Commerce.  Why not make it easier to see Disney's lobbying?  Disney remarked that it complied with all disclosure laws.  One person rebutted the argument for greater transparency by accusing the shareholder group making the proposal of wanting transparency only to demand conformity with its own political agenda rather than Disney's best interests.

The Q&A session was very political.  Several shareholders asked Iger to resign from a presidential council.  Iger patiently explained that being on the council and working with the president didn't mean he agreed with everything the president said or did, and it was better to have a "voice in the room" and be able to influence the direction of the country than be on the outside looking in: "I want to be in the room when it happens, but I respect your opinion."  He further elaborated by saying Disney projected its values through storytelling, where it would have the largest impact and reach, repeatedly referring to Zootopia, a movie about tolerance.

After a question on climate change, Iger said the "changes we see in climate are real," and Disney is doing everything it can to "not contribute to the problem." He expressed concern over Disney's Hong Kong and Tokyo parks, which are on the water and which may be affected by rising sea levels.

A shareholder alleging Disney was biased in its news reporting was met with strong resistance from Iger, who said ABC News and other channels were critical of the last president's administration, and he appreciated the "freedom to be adversarial, even to those in power."

I asked about Disney Tokyo's profit structure, where Disney lacks an equity stake in its park's management company, a different set-up from Shanghai and other international theme parks.  Iger explained the Tokyo park was negotiated back in the 1970s, when Disney didn't want to put substantial cash upfront and was comfortable delegating to a local management and operating company. Basically, Disney appears locked into the original contractual terms because the Japanese management company fronted all of the money for the initial development and land.

I also reminded Iger about unpaid student-athletes, from whom ESPN makes millions of dollars.  At a meeting a few years ago, I raised the same issue, and Iger referred me to the NCAA's role and Disney's documentary work through its 30 for 30 series.  Having heard nothing from Disney or Iger on the issue since then, I responded that waiting for the NCAA--a nonprofit--and its lawyers to take the lead on this issue would mean waiting forever.  As for documentaries, an excellent documentary was indeed made on this topic--Schooled: the Price of College Sports--but it was distributed by Viacom, a Disney competitor, not Disney itself.

As it stands, Iger, Disney, and ESPN look like modern-day plantation owners profiting from the blood, sweat, and tears of primarily African-American men who receive only food, shelter, and a piece of paper at the end of their service--a piece of paper that may not be worth much, if the expose of the University of North Carolina is any indication of nationwide D-I academic practices.

I said Iger might try to argue Disney had no direct control over colleges or the NCAA, but its million dollar payments to colleges gave it substantial influence as well as a "seat at the table" when it came to student-athletes' working conditions.  Years ago, Gap and Nike also tried to deflect exploitative practices at international suppliers and factories but soon realized they needed to be more hands-on to prevent consumer backlash and brand devaluation.  Colleges are ESPN's suppliers, and it has a responsibility to do more.  As Marvel's Spiderman says, "With great power comes great responsibility."

Iger provided the kind of response you'd expect from a rich and honest businessman.  He said he didn't know the current status of the 30 for 30 documentary he had mentioned years ago; it wasn't Disney's role to tell colleges how to run their programs; Disney's financial contributions helped colleges create numerous programs college athletes wouldn't otherwise have access to; and there are "two sides to this issue."

After all the talk about Disney values and corporate citizenship, I was sorely tempted to remark, "I didn't know it was a Disney value to profit indirectly from unpaid labor," but I held my tongue.  Iger's response minimized ESPN's influence in American college athletic programs.  It's as if the affluent cotton apparel retailer, upon being told of labor violations in the fields, responds that the fields are not his bailiwick, and the gentleman having an issue about field conditions should talk to the owner in the next city over.  Such an approach deliberately ignores Disney's vast influence over its suppliers of content--the colleges--in the same way Gap and Nike earlier tried to deflect blame for exploitative worker conditions on "independent" suppliers, many of whom derived almost all their business from a few primary American retailers.  If Iger is going to argue being on a presidential council allows him a voice, but paying colleges millions of dollars doesn't entitle him to help set or influence any student-athlete policies, he is either apathetic, hypocritical, or willfully blind.  I hope he changes his mind, but I'm not holding my breath.  Being a rich, successful businessman has its advantages, but identifying and empathizing with minority student-athletes probably isn't one of them.

Disclosure: as of March 8, I own an insignificant number of Disney (DIS) shares.

Bonus: ESPN's current troubles may be linked to how it is handling the unpaid student-athlete issue. Consumers are becoming more educated about their choices and do not want to support exploitation, even indirectly.  Iger's neutral stance--there are "two sides to this issue"--reminds me of Desmond Tutu's quote: "If you are neutral in situations of injustice, you have chosen the side of the oppressor."

Paying hundreds of millions of dollars each year to broadcast college football games has other consequences.  From a college football fan: "Hey Disney, you have this network called ABC. It is available for free and reaches far more viewers than ESPN. Try putting some of these games on ABC so people without cable can watch."

News of the Weird, from Disney's 10K (2016): "[B]roadcast channels are generally required to provide a minimum of three hours per week of programming that has a 'significant purpose' meeting the educational and informational needs of children 16 years of age and younger." (pp. 7)

Update:

Snap Out of It: GoPro or Go Home

Most software is fungible these days. Snap (NYSE: SNAP) has called itself a "camera company," which is clumsy shorthand for its goal of becoming a premier consumer hardware company. While Snap has successfully created exciting marketing events with its filters and is well-situated to promote blockbuster movies, this expertise alone cannot justify its current valuation. Following Larry Ellison's unrelated comments many years ago about "going back to the future," hardware is becoming sexy again because software features are easily replicated.

My main concerns are 1) Snap's main user base is between 10 and 29 years old; and 2) GoPro (NASDAQ: GPRO) is already the premier camera company.

With respect to 1), this group lacks high levels of disposable income and isn't known for brand loyalty, indicating hardware margins or profit may be stressed. As for 2), if Snap plans on avoiding competition with GoPro by focusing on teenagers and younger adults with cheaper products, Polaroid and vintage cameras have already been done. Spectacles is not revolutionary, unless you count flashing lights as a remarkable innovation over Google Glass. How does Snap plan on differentiating itself long-term?

Unlike Amazon (NASDAQ: AMZN), Snap cannot displace existing software and hardware companies, which have entrenched users and their own "sticky" ecosystems. Furthermore, how many different ecosystems will consumers tolerate before they become frustrated? A quick online search shows several apps capable of adding both filters and special effects to pictures, such as BeFunky.com. In short, Snap lacks a "wide moat" from a technological standpoint and needs to quickly capitalize on its accomplishment of being first to market and capturing younger users.

Being first to market can be a long-lasting advantage in the consumer market. Success begets success as retailers provide more prominent shelf space to faster-selling products, leading to relationships between suppliers, advertisers, and manufacturers that are hard to displace. If a consumer company is first to market, competitors often end up vying for second place, fighting over shelf and virtual space that hasn't already been allocated to the market leader. Older readers might remember that Gameboy was first to market and maintained its leadership position in the videogame industry, even though Sega later produced a much better product. In fact, Nintendo continues to ride the success of the Gameboy today, while Sega sputtered with its Dreamcast console, becoming the Reebok to Nintendo's Nike.

How can Snap ride the wave of its younger user base and its "first to market" unique filters? One interesting scenario would be for Snap to partner with existing hardware companies like Fitbit (NYSE: FIT) and GoPro. More specifically, Snap could leverage the retail relationships smaller hardware companies have already built and offer access to its software and user base--for a fee, of course--as a way for smaller hardware companies to combat Apple and Samsung. Trying to displace Fitbit and GoPro shelf space in existing retail establishments doesn't make much sense--there's only so much shelf space to go around--and Snap doesn't have enough hardware products to open its own stores yet. If Snap tries to go against Apple, Google, and Samsung alone, it risks becoming exactly like Fitbit and GoPro, i.e., hardware companies desperately trying to hang onto to existing customers as larger companies copy their products and force the smaller companies to spend more dollars on each additional user, delaying profitability and making it harder to maintain margins.

One potential scenario involves GoPro CEO Nick Woodman pledging his own net worth as collateral and taking GoPro private, with the understanding that Snap would be a long-term partner and GoPro would design its products to be compatible primarily on Snap's software platforms. With either Snap or a consortium of equity funds buying a 49% stake in GoPro, Woodman could direct GoPro into new areas, diversifying his own user base and continuing to spend dollars on marketing and retail relationships rather than software engineers. (Note: most of GoPro's open technical careers are currently in Romania and the Philippines for software-related positions.)

Once software costs are minimized, GoPro could quickly move into new areas such as 1) food delivery by drone; and 2) tourism/travel.

Right now, Walmart (NYSE: WMT) is attempting to solve the "food desert" problem in inner cities, which tend to have cheap fast food and not enough healthy food. Using drones and online grocery ordering could revolutionize healthy eating in inner cities or isolated areas like First Nation lands. GoPro could offer to work with Walmart, Costco, and Target in delivering fresh food to consumers--a low margin business, but one that could serve as indirect advertising for its drones and other hardware products and a way to gain feel-good content.

Users, especially younger users, are tired of meaningless news and will quickly warm up to a software platform bringing them creative and positive content, such as tourism videos. GoPro CEO Woodman originally wanted to create content through an entertainment channel, but it wasn't profitable to do so, or he would have done it. As a private company in a cooperative setting, and with Snap handling the software, GoPro could focus on content development and capturing more users outside of Snap's existing demographic. Snap would broaden its demographic reach and save money and time leveraging GoPro's existing retail channels, and GoPro would maintain its financial strength by avoiding the costs of building and maintaining a competitive software platform.

Netflix once advertised with Amazon in its early days when it was trying to build its brand, and Jeff Bezos put a stop to it as soon as he found out about it, but GoPro and Snap don't compete directly with each other or larger food retailers, airlines, or travel agencies, making it easier to build relationships.

Once Snap demonstrates it can be a reliable partner, it can branch out to other consumer companies like Fitbit and discuss partnerships or demand a premium to reach its users in more substantive ways. For example, if Snap receives a movie licensing deal, it would normally create filters and receive payment for its marketing. However, in a longer-term partnership where its platform is used as a conduit to attract self-made content--such as mini-movies--it could become the purveyor of cool.

Right now, YouTube and other larger companies focus on all types of users to gain the most advertising dollars possible, but in doing so, fail to differentiate themselves. People sometimes go on YouTube to search for music and random videos, but they don't look forward to opening its app every day because Google relies on algos rather than curated content guaranteed to "wow" users. If Snap and GoPro create a mutually beneficial relationship establishing themselves as content curators and conduits for creativity, they can attract other companies experiencing difficulty breaking through the usual Apple, Google, and Facebook channels.

Snap's 12% drop on March 6, 2017 shortly after its IPO indicates it needs to think outside the box. In the hardware world, Apple and Samsung already dominate. Smaller companies like Snap need to figure out a coordinated way to take on the established behemoths or end up bleeding cash trying to avoid becoming fads. Meanwhile, GoPro CEO Woodman needs to do something soon. In 2015, he ordered a 180-foot yacht, to be delivered in 2017. It won't look good to be in a custom-made yacht while his shareholders suffer. Unless Woodman does something soon, his yacht might end up being called "French Revolution" or "Marie Antoinette." Will GoPro and Snap work together, or will they try to displace Apple and Samsung, two companies with marketing budgets larger than most companies' market capitalizations? Shareholders of Snap and GoPro should hope their CEOs make the right choice.

Bonus: the kind of partnership I envision is similar to the way Disney runs international resorts, i.e., a hybrid licensing and royalty model. Basically, Snap could license its software and platform to GoPro (and other smaller hardware companies like Fitbit) and also negotiate royalties based on revenues to incentivize a true partnership.  In the first few years, the licensing fees would be smaller and the royalty percentages higher, but as both companies learn each other's channels and execute more efficiently, the licensing fees could increase while royalty percentages to Snap decrease. More here on the overall model. 

Update on March 8, 2017: great comment from another website: "I like your Nintendo vs. Sega analogy but you compared apples to oranges. Gameboy was a portable handheld. Dreamcast was a console system. A better comparison would be how Sega's 16GB Genesis was better than Ninendo's 8bit NES system or how their full color GameGear portable was better than Ninendo's black and white, dinky Gameboy. But like VHS and Beta, Nintendo won out." 

Vaclav Havel on the Intellectual

Vaclav Havel, a political prisoner in the Czech Republic who later became its first President, is not studied enough.  His life is amazing, and his thoughts even more relevant today as many "developed" societies replace spiritual beliefs with consumerism.

Here are his thoughts on the role of the intellectual, from Disturbing the Peace (1990), copyright Paul Wilson, paperback (First Vintage Books edition, April 1991), pp. 161:

Here is another excerpt, on faith (pp. 190):

In an age where ideas are recycled and claimed as new, Havel continues to be even more original with the passage of time.