This Weekend’s Unanswered Questions (100105)

Another installment in a nearly-regular series of mysteries and pseudo-mysteries (usually 3-4) this inquiring mind would like to have answers for (some links included may require free registration):

QUESTION 1: Shouldn’t there be a warning sign on this stat?

At issue is the heavily-demagogued “average earnings” of production workers in manufacturing and non-supervisory workers in services. Alan Reynolds thinks this stat has got to go (bolds are mine):

But that data series does not purport to measure hourly pay at all, much less a typical worker’s wage. The figures cover only 62 percent of all jobs, not 80 percent, if government workers and the self-employed were included. And that just begins to explain the confusion.

In fact, this data series is so misleading it is finally being phased out by the Bureau of Labor Statistics (BLS), to be replaced over the next four years by one that covers all private employees. For one thing, as the BLS explains: “the production and non-supervisory worker hours and payroll data have become increasingly difficult to collect, because these categorizations are not meaningful to survey respondents. Many survey respondents report that it is not possible to tabulate their payroll records based on the production/non-supervisory definitions.”

An accountant in a manufacturing company should not be counted as a production worker, for example, but an accountant in a bank should be counted as a non-supervisory worker. Non-supervisory is defined to exclude supervisors, yet include “supervisory workers.” Such arbitrary distinctions make responses “increasingly difficult to collect,” suggesting the estimates depend on an increasingly dubious sample of older firms.

The most obvious flaw in the average earnings figures — as Stephen Moore pointed out in an Aug. 29 column, “The Wages of Prosperity” — is that they totally ignore health, pension and other benefits. With benefits included, real compensation per hour was up 3.6 percent between the second quarters of 2004 and 2005 among non-farm businesses, and up 5.6 percent in manufacturing.

The last paragraph shows that real compensation is continuing to beat inflation of 2.5% or so by a substantial margin, and the bleating about Americans falling behind has no “real” basis.

QUESTION 2: How long can the weekly magazines dance around their problems?

They keep playing games as they attempt to keep the circulation numbers up. Here’s the latest instance (requires registration):

TIME INC. CIRCULATION RECORDS SUBPOENAED
150 Clients and Advertisers Notified of Federal Investigation
September 22, 2005

NEW YORK (AdAge.com) — Time Inc. has been subpoenaed by the U.S. Attorney in the Eastern District of the Court of New York for information about the company’s sponsored sales programs. Such programs have come under new scrutiny after the Audit Bureau of Circulations disqualified a sponsor earlier this year.

150 notified

The company, which received the subpoena in late July, has talked to about 150 of its major clients and media buyers to alert them to the subpoena and walk them through the sponsored sales programs that some of its titles have used.

Sponsored sales programs, as described by Time Inc. Executive Vice President Jack Haire in a letter to advertisers, include “magazine subscriptions purchased by a sponsor for distribution either to public places, such as waiting rooms in doctors’ offices, or to a targeted group of individuals selected based on the subject matter of the magazines.”

Under Audit Bureau of Circulations rules, sponsored sales subscriptions may be counted as “paid” circulation if the sponsor pays at least one cent per subscription. Time Inc. now plans to change a number of those subscriptions from “paid” to “qualified” on ABC Publisher Statements as of the period ending June 30, 2006.

5% of total circulation

At the Time Inc. magazines that are tracked by the audit bureau and have rate bases — paid circulation guarantees for advertisers — about 5% of the total circulation is now classified under sponsored sales.

And certain titles are far more exposed to reclassifications than others. People en Espanol, for example, reported an average paid circulation of 462,099 during the first six months of the year, comfortably above its rate base of 450,000. But the total includes 108,682 copies that were derived from sponsored sales, or a whopping 24.2% of the rate base.

QUESTION 3: Could Fan and Fred take the economy down?

The Wall Street Journal is worried (link requires subscription):

When we first raised doubts about Fannie’s accounting more than three years ago, we were derided as irresponsible, or tools of the shorts. Turns out we had understated things. Dawn Kopecki of Dow Jones Newswires, who has owned this story, reported this week that investigators have uncovered even more accounting “irregularities” — including overvaluation of assets, attempts to hide derivatives losses and the possible improper use of tax credits.

Investors who had trusted the Wall Street analysts who said the worst was over took a big hit, as the stock fell to an eight-year low of $41.71 on Wednesday. Fannie shares did a dead-cat bounce yesterday, but they remain well below their highs at the start of the year ….. and far off what they were in their glory days of zero market scrutiny before 2002.

Which brings us to Mr. (Ohio Congressman Michael) Oxley, the House Financial Services Chairman who is pressing a “reform” for Fannie and its sibling, Freddie Mac, that fails to address their core financial risks. His bill does nothing to reduce their huge portfolios of mortgage-backed securities (MBSs) and the derivatives they use to hedge those portfolios.

Reducing their MBSs would dent their profitability. But a meltdown in their black-box hedging operations could have far worse consequences, and the ramifications wouldn’t be limited to Fan’s and Fred’s shareholders. Federal Reserve Chairman Alan Greenspan refers to this as “systemic risk,” a polite way of saying that the damage could spread throughout the U.S. financial system and beyond. With Fan and Fred between them controlling about one-fourth of the multitrillion-dollar MBS market, that is no exaggeration.

They have a point. Fan and Fred’s large share of the MBS market should be reduced. Politically, the party in power will get the blame for any damage the Fan and Fred problems inflict on the economy, never mind that most of the massive buildup in the MBS portfolios occurred in the 1990s.

QUESTION 4: Will someone finally acknowledge that gutting the Catholic Church in the US is their real goal?

Though “the corporate veil” is a time-honored legal construct, a bankruptcy judge thinks he can pierce the longer-standing archdiocesan-parish “veil” (requires registration), which plays nicely into the hands of those who wish to capitalize on the sexual abuse scandals financially gut the US Catholic Church:

Blameless, but Liable
A bankruptcy judge threatens religious freedom.

When Bishop William Skylstad of Spokane, Wash., warned recently of the “national consequences” of a bankruptcy ruling that has rocked his diocese, it wasn’t an instance of self-serving rhetoric. The fate of the decision has implications not just for Roman Catholics but for anyone who cares about religious liberty.

According to federal Bankruptcy Judge Patricia Williams, more than 80 Catholic parishes in the Spokane area are no more than branch offices of the local archdiocese. Archdiocese creditors–in this case, the victims of sexual abuse by various priests–have as much right to the assets of churches and schools as they do to the buildings and investments under direct diocesan control. Or so the judge reasoned.

It so happens, however, that the Catholic Church does not think of parishes as a diocese’s branch offices. It never has. The church’s Canon Law, the world’s oldest formal legal system in continuous use, says that parishes are separate entities, while spelling out their relationship with the presiding bishop. He wields considerable authority within his domain, but parish assets are not his to dispose of as he pleases.

….. If the Spokane ruling stands and is mimicked elsewhere, diocesan creditors will enjoy greater access to parish assets than the local bishop himself. Hundreds of churches and schools that had nothing whatever to do with any sexual predator, and whose facilities exist through the patient charity of generations, will be at risk–as will the very autonomy of the church.