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February 28, 2004

Jury Duty - Take 1 (continued)

(A continuation of a previous article)

Richard, the trial court administrator, sat down with four unhappy and still damp jurors in the courthouse cafe.

We all had the same experience, so we all had the same story to tell. Each of us interrupted our busy lives to fulfill our civic obligation. Instead, the slow security screening process left us outside in the rain long enough that we missed the jury orientation session. To add insult to injury, the jury coordinator told us that we couldn't be excused and would have to reschedule.

The other jurors were visibly and audibly very displeased. I was the least annoyed of the bunch, because I'm such a dewy-eyed optimist. Or perhaps it had something to do with my profession — I deal with things that Don't Work™ all day every day and I was naturally curious to understand the way that this particular system failed. (I'm also the guy who, at a large team outing to play laser tag, tracked down a significant scoring problem to an interaction between two particular equipment packs.)

Richard explained that the security screening process that morning was unusually slow. This was the first time to his knowledge that a significant number of jurors were "late". Our first suggestion was that the courthouse should open before 8AM to give people time to get through security. He said that they already do that on days when they expect large crowds, such as when they need a larger jury pool due to a high-profile case. They didn't expect a problem on Wednesday, so the doors opened at their regular time instead of 15 minutes early. The obvious problem with this approach, we countered, was that it doesn't help to open the doors at 7:45 unless people know to be there at 7:45. The mailed jury summons and the telephone instructions both instructed us to arrive at 8AM. In fact, the telephone instructions said that the doors would not be open prior to 8AM! Somehow, surprisingly, this hasn't caused a problem in the past.

I had been skeptical about the level of security required at a courthouse, cynically thinking that it was some sort of 9/11 response, but Richard volunteered the reason for the security before any of us asked: There have been a number of serious incidents in that courthouse in the past, including guns being pulled on judges and jurors, suicides, etc. He commented that of the several courthouses he's worked in, this is one of the most secure. He also said that the jurors themselves were a major part of the slow security screening, because they wear or bring enough metal to regularly set off the metal detector. The summons and the telephone instructions were both very clear about the importance of not bringing dangerous objects and minimizing metal, but it would appear that most people don't take it seriously.

A few people, like myself, do pay attention to the summons and telephone instructions and wish they had mentioned standing outside for a long period of time. Another juror suggested that if we had known we'd be spending 40+ minutes in the rain, we would have brought warmer coats and umbrellas. Richard agreed that the court could easily advise people to be prepared for the weather.

We asked if it was possible to delay the jury orientation if security screening was backed up. He explained that it wasn't, because the schedule for the rest of the day depended on the jurors being available on time. This sounded reasonable to me — if the jury is on the critical path, it makes sense to go ahead with the 200 already present instead of waiting for the last 20. (There were roughly 230 jurors called up Wednesday, though I don't know how many were already excused.)

I suggested that when the jury orientation is about to begin, but there's still a line for security, they should send someone out to collect the jurors and move them to the front of the line. Richard took that suggestion very warmly and noted that they could implement it immediately.

Another troubling fact that was brought up was that jurors and other parties to the trials stand in the same line. This makes it possible for the jury pool to be tainted by conversations between people who shouldn't be talking to each other. Richard recognized this problem but no one had any practical solution. Opening an additional entrance was too expensive.

In the end Richard didn't "help" anyone by dismissing them from jury duty, but I was impressed by his professionalism and his genuine concern. He dealt with three quite upset people (plus me, but I'm easygoing) without ever becoming upset himself. He was articulate and explained the facts rationally and I never felt that he was trying to hide behind excuses. He listened to us and treated us like real people and it was plain that he was paying genuine attention to our concerns. He looked us in the eyes when talking with us. He even wrote down our suggestions. After the other three jurors had left, I thanked Richard for talking with us and noted that I thought he handled the situation very well. He thanked me for telling him that, and it was the sort of thanks that comes from people who aren't told often enough that they're doing a good job.

I rescheduled my jury duty for Friday.

February 26, 2004

Jury Duty - Take 1

I reported for jury duty Wednesday morning. It was the first time I'd ever done so, so I didn't know quite what to expect. I was frankly looking forward to the experience, because I've never seen the justice system up close and personal before.

The procedure is to call the courthouse the night before and listen to a recorded message to determine if you need to report the next day at all. This maximizes jurors' scheduling uncertainty, and in fact I had to avoid scheduling some business travel during this time period. The recorded message, and the summons I received in the mail, both stated that the doors open at 8AM and stressed the importance of not bringing metal objects due to security screening.

I arrived at the courthouse somewhere between 8:05 and 8:10 (I didn't wear a watch) and was surprised at the length of the line that had already formed ahead of me. I made small talk with the other people in line, comparing the experience to being at an airport. And, this being Oregon, it was raining. I waited in line in the rain for about forty minutes just to reach the front doors of the courthouse. I had no idea it would be so bad. I wasn't wearing warm enough clothing and I hadn't brought an umbrella. The instructions gave no warning that just entering the building was a significant issue. Before I went through the doors I counted the line behind me, about 30 people.

I mentally compared the experience to waiting in line at the post office or at the DMV. The government doesn't care about making people wait in line or how uncomfortable they are. <sigh> It's illuminating to contrast that with lines at a for-profit business like a grocery store. I've only had two uncomfortably long waits there in the past year, and even then they were less than 10 minutes. It's amazing what a little financial incentive will do for customer service.

It was 8:50 when I was finally through the security screening. I went downstairs to the jury orientation room only to see that the door was closed and a sign said I should go back upstairs to the information desk. They had already started. I was too late.

There was (you guessed it!) a long line for the information desk. After a couple minutes the jury coordinator showed up and started talking to people and it became apparent that most of the people in line for the information desk were also jurors who missed the orientation — roughly 15 people. There were undoubtedly some still outside, as well.

The jury coordinator explained that the jury orientation starts between 8:30 and 8:45 and that we were all late and that we should have arrived earlier. Some of these people had been in line since before 8AM, before the courthouse doors even opened, so they were justifiably unimpressed with that explanation. We were told that we needed to reschedule our jury duty and could not be dismissed from it. If we didn't reschedule, we'd be cited for failing to appear and could be held in contempt of court. Lots of snickering in the crowd.

We were given the option of rescheduling and leaving, or staying to talk with the trial court administrator. Who, incidentally, was doing an interview and wouldn't be available until 10AM. It was shortly after 9AM at this point, so the wait would be significant. Only four jurors (including myself) elected to stay and chat with the administrator. Several of the others were given his contact information so they could write letters expressing their displeasure.

I had brought both a book to read and a notebook, so I wasn't worried about being bored during the wait. I sat down and started writing notes for this blog article. :) I also wrote down the questions and suggestions I had for the administrator. He showed up after only a few minutes (unavailable until 10AM, indeed!) and the group of us sat down at a table in the cafe.

… I'll write about our conversation shortly.

February 24, 2004

Bob Colwell at Stanford

Via an article at The Inquirer I learned that ex-Intel architect Bob Colwell gave a talk at Stanford, which can be viewed online. This is very long, so don't watch it during business hours without your manager's approval. :)

There are numerous and (hopefully) obvious reasons why I oughtn't comment publicly on the content of his talk (DWL!) beyond saying that it's both entertaining and thought-provoking. Oh, and Andy Glew is in the audience, if you know who that is.

It's a neat experience to be listening to something on the web that contains intentionally dumbed-down and sanitized examples, and to know the details they're not sharing. There are a lot of things that I found very amusing, and other industry people should too.

This talk is mostly accessible to the layperson, with a fairly small amount of jargon that the Great Unwashed Masses will have to ignore. If you'd enjoy a glimpse into my world, grab a beverage, get comfy, and watch the presentation. (Okay, it's not exactly my world. I'm in validation, not architecture — they puts the bugs in, and I takes the bugs out.)

February 21, 2004

Lou Dobbs Doesn't Know What Productivity Is

I almost never watch Lou Dobbs Tonight because it's disgustingly anti-globalization and presents the subject with very little intellectual sophistication. I watched it tonight, which only reinforced my impression.

Lou Dobbs
… you and I both know what they're doing is they're laying a man or woman off and they're shipping that job overseas simply to lower wage costs. Period. Cheap labor, that's all it is, and they want to dress it up.
Tom Peters
I think it's productivity. I really do buy the productivity thing but the point is …
(crosstalk)
Lou Dobbs
Wait, wait, when you say it's productivity, the same services and products are being provided but simply at a lower cost. That's not productivity.

Ummm… How to say this gently…

No, Lou, that's the very essence of productivity.

UPDATE 2004-02-21 21:37:06 UTC: Dave's keeping me on my toes by saying I ought to be clear that I mean factor productivity (output/$) and not labor productivity (output/man-hour). Note to self: use more adjectives when writing pithy snipes. <grumble>Even though man-hours are as mythical as man-months…</grumble>

February 19, 2004

Cato's Proposed Social Security Reform

By way of EconLog I've read the Cato Institute's proposal (PDF) to address the staggering catastrophe that is the long-term financial outlook of Social Security. The linked document has details about how bad the problem truly is, so I won't bother rehashing that information here.

The Cato plan is to let individuals invest their half of the SS payroll taxes (6.2%) in heavily restricted but nominally private accounts, with the other half of the payroll taxes (the employer's) still going to the government to cover current retirees. People who choose this new and optional arrangement would cease accruing benefits under the standard SS program but would be compensated for past contributions. There are other details too, but this should be enough to illustrate the basic idea for people who don't follow links. (And you should feel ashamed of yourselves. <g>)

What do I think about this proposal? Not good enough.

Social Security is a program of dubious constitutionality (which even the government admits) which is nothing more than an intergenerational wealth transfer. It is in no sense a savings or investment or insurance program. It is explicitly not an insurance program, contrary to propaganda, a fact established by the government's own lawyers when the matter came before the Supreme Court. It is not investment because (1) current revenues mostly go toward current payments and (2) whatever surplus exists is "invested" in non-marketable government bonds (which incidentally reduce the apparent size of the budget deficit.) The government spends all the money it takes in from payroll taxes, but government spending is fundamentally unlike business spending because the government generates almost no sales revenue. When the government spends money it doesn't do so for the purpose of making a profit and providing a return for investors — it's consumptive spending, not productive spending.

The Cato proposal would be an improvement over the current situation but it's still a forced savings plan and therefore doesn't fix the information problem that individuals have more knowledge about their particular financial circumstances and are therefore better equipped to make savings decisions than the government is. It would allow individuals some flexibility over their investment options, which is good, but the basic problem remains.

I don't want Social Security to be saved. I want it to be dismantled. If I had the choice, I would eagerly opt out of the system completely and abandon all the money I've paid into it so far. I don't need or want the government's help to save for retirement. I have great contempt for the system and regard it as grossly immoral.

I'm very pessimistic about the future solvency of Social Security. I believe medical science will advance very quickly and it will soon become common for people to live to extremely old ages, such as 130, which under the existing system would entitle them to collect Social Security for half their lives! Defined-benefit programs of all forms will face significant stress due to increases in lifespan. That's why I prefer individual ownership of assets, so people with long lifespans have both the means and the incentive to manage their finances throughout their long lives. But it is wrong to force people into savings programs.

It's scandalous that this country treats people as if they're not responsible enough to take care of their own lives, but somehow responsible enough to vote to control the lives of others.

February 17, 2004

Spending Problem

It's ironic that given the three-day weekend (President's Day) I did my only substantive blogging on Saturday. There are a number of subjects I'd like to write about, but simply haven't. I spent most of Sunday and Monday reading instead of writing. I'm a fast reader but a very slow writer, which gives my blog-writing time a high opportunity cost.

Speaking of economics — and why do anything else, honestly? — I had a jarring experience while doing a little shopping this weekend. I went out to spend a gift certificate (on Family Guy DVDs) and also bought a CD. Total cost $55.98, but the gift certificate took $25 off.

Nothing unusual there, right? The odd thing is that I hesitated. I thought to myself, "gee, that's a lot of money" and was tempted to put the CD back to reduce the total cost. I've had a regular job for years, but I still spend money like a poor college student. (A financially responsible one, anyway.) It's hard to let go of old habits.

I've recognized this tendency for a while, and tried to fight it last summer by explicitly creating an entertainment budget for myself. I kept track of the fun/frivolous things I spent money on and actually had a spending target that I intended to reach. The experiment didn't last long. I stopped paying any attention to that budget in less than two months and never came close to my target.

I'm the sort of person you'd like to have in charge of some government agency's spending. Except I'd never take the job.

The first step to recovery is to admit you have a problem, right? Hi. I'm Kyle, and I have a spending problem. I need your help. :)

February 15, 2004

Lawyer Logic

Shocking! Outrageous! And sorta funny, too…

Mehdi sends this amusing bit of lawyer logic:

In the bird bombing case, conservationists sued to protect an important nesting island for migratory birds in the Pacific. They established that the U.S. military's bombing of the island during live-fire training exercises violated the Migratory Bird Treaty Act.

Haynes' team argued in a legal brief that conservationists actually benefit from the military's killing of birds because it helps make some species more rare — and "bird watchers get more enjoyment spotting a rare bird than they do spotting a common one." They argued the bombing was good for the birds too, as it kept the island free of other "human intrusion." [source]

<eye roll> Okay. <deep breath> Granted, this is ridiculous, but it's actually what lawyers are supposed to do. They're expected to argue for their client in as many different ways as possible so as to increase the odds that at least one of the arguments will be convincing. This one was wacky and they got called on it, but that doesn't invalidate the strategy in general.

I'm sure that this legal team made other arguments, too. Presumably ones that weren't quite so awful. Hopefully some that mentioned the military value of live fire exercises and the need to conduct them somewhere despite the inevitable NIMBY contingent from every possible alternative, who will also make every possible argument against the exercises. Presumably the opponents have a few good arguments too, better than this environmentalist nonsense.

Thoughts on Valentine's Day

This is posted on the 15th because I timestamp with UTC, but locally it's still the 14th.

This is the only day of the year that seems remotely appropriate to ask this question: Why do supermarkets sell condoms in the feminine hygiene aisle?

There isn't a masculine hygiene aisle — is that because men are naturally clean and don't need hygiene products, or because we're dirty and unconcerned about it? Maybe condoms are with women's products because women are more motivated to ensure they're used? Maybe the stores are just putting all the related products together… but then why don't they label it the sexual hygiene aisle? Truth in advertising, anyone?

I do hope nobody was expecting a serious commentary about love. I suppose I could do that if anyone were interested, but it's not my usual shtick.


For those who are curious, I didn't get any takers on my generous offer to allow a lady to buy me a pizza today. I don't know what happened; I guess they were all out bowling or something.

Instead, I bought my own pizza and spent some quality time with the latest QJAE, which is all about deflation!

Creeping Socialism

I wrote about the scandalous cost of the Medicare prescription drug entitlement a few days ago. My pithy comment that "a creeping socialism is inherent in democracy" was shocking and/or witty enough to get a Catallarchy cite, so I think it's reasonable that I make a longer statement about the matter.

It's first necessary to recognize that the United States is not a democracy. It is a constitutional republic. (The fact that our two prominent political parties are named Democrat and Republican looks today like nothing more than an amusing accident. Yes, I'm easily amused.) Our government is clearly republican, not democratic, because very few issues are decided by referenda.

Democracy in its pure form is simply the rule of the majority.

Democracy is a terrible system because it doesn't recognize any limits on the power of that majority. Whatever they decide, goes. Thomas Jefferson described democracy as "nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine." I bought a button many years ago with a more abrupt formulation: "Democracy is four wolves and a sheep voting on what to have for lunch."

The curious thing about democracy in politics is that nobody is ever attacked for advocating it. It's completely safe and uncontroversial, like praising motherhood or supporting "working families" or caring about The Children™. Democracy is a magic word. Politicians talk about "democracy" as if it meant "freedom" or "liberty" — and people make that mental substitution automatically as they listen!

The federal constitution as well as the constitutions of the states enumerate the powers of government. The government has no powers not specifically granted to it. The constitutions also provide explicit prohibitions on government actions by identifying individual rights to be protected from government interference. The restricted power of our government is its most significant feature. That's the thing worthy of praise and evangelism. The form of government (democratic or republican) is unimportant compared to the powers of government.

The limits on government power have been greatly eroded since the nation's founding. Today we have an income tax, a central bank, fiat money, public schools, and wealth transfer programs serving the poor, the old, the jobless, the disabled, the addicted, etc. — all of which would have been violently opposed by the nation's founders. All of these things are expressions of the will of the majority that infringe on the rights of individuals.

Our constitution has thankfully made the progression toward full socialism slower than it would have been under direct democracy, but the trend is clear. The tyranny of the majority is real and it steadily claws away at individual rights because most people have some form of collectivist ethics. They believe that it is good and proper to take from one person and give to another. It's always sold under the banner of compassion, of helping the downtrodden as moral duty. From each according to his ability, to each according to his need.

Collectivists do not permit disagreement. They are not satisfied with freedom, with the ability to be "compassionate" with their own funds and the funds of like-minded people — they aim to use the coercive power of the state to compel obedience from dissenters. I regard this as a monstrous evil. It is particularly perverse that the same intellectual movement that embraces nearly every form of diversity seeks to eviscerate the one that truly deserves protection: the diversity of opinion.

The only thing that can stop and reverse the collectivist trend is a revival of individualist ethics. Without it, the Constitution is a dead letter.


UPDATE 2004-02-17 00:57:48 UTC: Case in point:

My own preference would be for simply banning certain super-efficient technologies. We could outlaw the fish-finding sonar on the trawlers, return to traditional fish-finding skills and let the inherent inefficiency of the small fisherman help preserve our oceans' fish, not to mention the families and communities and related businesses that depend upon them. Ban the feller bunchers from the forests, localize electric production, go back to telling airplanes what towns they have to serve, put people and their needs before systems, and reduce the risks of massive systemic failure in the bargain. [source]

This luddite would happily impose their value preferences on everyone else. Incidentally, there's no acknowledgement of the fact that increased efficiency could be used simply to produce the same output with lower costs, not necessarily to increase production.

Hat tip to Micha at Catallarchy, who has much more to say about it.

February 11, 2004

Do Not Feed the Pirate

It is imperative that I never, ever, ever eat a Pizzagra.

Pirate, I can do. Pizza, I can do. Sexy, I can do. But that's a "pick any two" solution. All three simultaneously would undoubtedly cause some sort of catastrophe, destabilizing the very fabric of the universe, which would be bad. In lots of ways.

Unless she's buying, because then I can be cheap too, which trumps all the others. (More booty for me, you see. Arr!)

So, uh, any wenches ladies want to buy me a pizza? Valentine's day is soon. :)

…Goodness, I have all sorts of inappropriate puns about hooks and curves that I could write here. But they're so bad I … I can't. Not at the same time I'm trolling for a chum. Or is that chumming for a troll? I mean… right, time to stop digging.

February 09, 2004

Thoughts About Oldsmobile

A couple years ago, General Motors decided to phase out the Oldsmobile brand. The oldest American automobile company, established in 1897, was closing.

From GM's statement:

General Motors has invested a considerable amount of engineering and capital to develop Oldsmobile's current products — the Alero, Intrigue, Aurora, Silhouette and Bravada. Significant marketing resources have also been dedicated to try to re-position the Oldsmobile brand. But the market has not responded as we had hoped, and Oldsmobile continues to be unprofitable. We looked at opportunities for new products for Oldsmobile, including products we could develop with our alliance partners, but we could not find a profitable solution consistent with the overall General Motors' portfolio.

Accordingly, General Motors' management has decided not to make the considerable additional investment to continue to update and replace Oldsmobile's current products. This decision was difficult, but the management at GM feels strongly that it is the right course of action in order to sustain and strengthen our remaining portfolio of brands. [source]

That statement is remarkable in its honesty and its sensitivity. It presents the facts directly and doesn't attempt to downplay the decision or spin it into good news or seek any scapegoat of any kind. Employees and customers alike deserved and received this kind of respectful statement. Well done — and from someone who learned to drive in an Oldsmobile, thank you.

General Motors has set a fine example in public relations. It's instructive to note the difference in tenor between this, and any typical statement by a politician. The contrast is jarring and not coincidental. Markets reward honesty. Politics does not — not today when Congress behaves as if it has nearly unlimited power to pander to special interests — but it used to, and it could again.

February 08, 2004

The Pirate Song

<trumpet blast> And now for something completely different.

Dave found some pirate treasure in the form of a song and animation. It's awful. It's terrible. But that's why it's so great. For the pirate lover in all of us — and you do love pirates… don't you?

Don't be frightened away by the URL, there's no porn there. (Awww…)

$135 Billion "Oops"

It became news about a week ago that the new Medicare prescription drug entitlement will cost about a third more than advertised. I'm not surprised the original number ($400 billion) was dramatically wrong, but I am surprised that the truth came out in only two months. I expected Bush to be safely retired before the costs became apparent enough to cause political heat.

Bush certainly deserves harsh criticism for this. It would genuinely please me if the "Bush Lied!" crowd would seize this opportunity to grow their brand.

But on a personal level, when I think about this $135 billion "oops" I just feel numb. I'm a little disappointed that this matter doesn't fill me with apoplectic rage that I could channel into a scathing condemnation of runaway government spending, because that would be very entertaining. Maybe I haven't been getting enough sleep lately. Or maybe I understand the roots of this problem and have seen it so many times that I've become desensitized.

How did we get here?

I don't blame the politicians. Really. The fact that they pander to special interest groups like seniors is totally natural. It's an effect of the structure of our political system. The "pork incentive" is systemic; it's not a failure of any particular individual politician.

The blame lies squarely with the voters. They vote for politicians who bring home the bacon, because they bring home the bacon. They elect and reelect politicians on the basis of indirect bribery. Of course it's true that most people don't vote for candidates whose ideologies they explicitly endorse — instead voting for the lesser of two (or more) evils — but the positions of the candidates must generally reflect those of the electorate or they would have no popularity at all.

Most people want a Medicare prescription drug entitlement. I feel comfortable saying that the vast majority do, because the only significant political opposition it encountered was from people saying that it would increase the deficit too much. The open presumption, then, is that if the government had a surplus there would be no objection to the program — i.e., the program would be superior to reducing taxes.

For people who already believe that the government has a responsibility to provide medical care to seniors, a drug program is a completely natural extension of existing policies, a sensible way to keep in stride with the ever-changing capabilities of medical science. It is a tiny minority who argue against the new entitlement on the basis that the government shouldn't be involved in medical care or wealth redistribution to begin with.

A prescription drug entitlement was inevitable no matter which political party controlled whatever branch of the government. A creeping socialism is inherent in democracy. At one time the United States was understood to be a republic, not a democracy, and the government power was strictly limited precisely to protect the rights of minorities from the will of the majority.

We've come a long way. It's a long way back.

February 03, 2004

How to Give a Performance Review

It's employee performance review season where I work (and it does seem to last for an entire season) and among the groaning and complaining about how terribly un-fun the process is, there's an occasional glimmer of sunshine.

Strike that, there's no sunshine. Great imagery, but it won't pass the horselaugh test for anyone familiar with NW Oregon winters. We've got overcast skies and both kinds of weather — rain and drizzle — booked solid until summer. No sunshine. Let's try this without metaphor: there's an occasional funny bit.

Peer feedback is an important part of performance review. My co-worker Loren provides an essentialized prototype for such feedback:

3 Strengths:
  1. Smart.
  2. Funny. Easy to work with.
  3. Nice dresser.
3 Improvements:
  1. Smart, but maybe too clever by half. Work on application. Learn more.
  2. Funny, but a smart ass.
  3. Nice dresser, but what's with the polka dot vest and purple hat band?

See, it's not so hard. :)

February 02, 2004

SOARA - A Proposal Everyone Should Hate

The Stock Option Accounting Reform Act (S.B. 1890 / H.R. 3574) is an example of politics at its worst.

From its summary, the Act requires "an issuer of registered securities to show as an expense in its mandatory annual report the fair value of all stock purchase options granted to certain of its senior executive officers."

The Act is being advertised as a political compromise: Options granted to executives must be expensed, but options granted as part of a broad-based employee stock option program do not need to be. This legislation is calculated to mollify (1) those who see something wrong with the practice of granting unexpensed stock options to executives and (2) technology companies with broad option programs who fear expensing all options will be a significant hit on their reported earnings.

Both groups are wrong. I'll explain in a moment.

The fundamental question is: What is the proper accounting method for stock options? The SOARA answer is that, hey, everyone's right! The options that group #1 is concerned about must be expensed, and those that group #2 is concerned about don't need to be. The politicians make everyone happy, shake hands at the photo-op, and run for re-election. Let's celebrate!

However, they haven't properly answered the question. Their answer is that stock options should be expensed sometimes — it depends on who's getting them. Let me repeat that: it depends on who's getting them. This is absurd. Stock options do not acquire mystic qualities depending on the identity of their recipient. A stock option is a stock option, and their accounting treatment should be uniform. It makes no difference whether the option is going to an RCG or to the CEO. Making the accounting treatment of options dependent on the identity of their recipient is as plainly ridiculous as making the accounting of cash salaries dependent on who is being paid.

One thing that both proponents and opponents of stock option expensing should agree to without controversy is that their accounting treatment should be uniform. Either all stock options should be expensed, or none should. (The origin of the shares, e.g. from treasury vs. newly issued, may be a legitimate aspect of debate, but the identity of the recipient is clearly irrelevant.) Seen in this light, SOARA is clearly the wrong solution. It elevates a blatantly wrong answer to the status of law and puts the force of government behind it.


The proper accounting method for stock options is a matter of fact, not a matter of opinion. I have previously argued that stock options should not be expensed and that the opportunity cost argument in favor of expensing is wrong.

Stock options are a form of compensation and do have a cost, but the cost is borne exclusively by the existing stockholders and not by the company itself. The cost is expressed in stock dilution. Expensing options would double-count this cost — first by reducing earnings with a fictitious expense, and again by dilution. Diluted earnings per share would be hit twice, instead of just once.

The cost of stock options is already fully accounted for in dilution. They should not be counted as a company expense because they aren't a company expense. They're a stockholder expense. Period, full stop.

A company's balance sheet should record information about the company, not its owners. It would be useful to investors if the company published a table containing information about outstanding stock options, including details like their exercise prices and expiration dates. Let investors make their own estimates about the amount of dilution likely to materialize, but don't lie to them by recording company expenses that in fact, do not exist.


The opponents of expensing who support SOARA are wrong to think of that Act as a successful compromise. It is not. It is a complete capitulation. SOARA does not permanently protect broad-based option programs. It instructs the government to conduct a study of the economic impact of expensing broad-based option programs, but does not prohibit expensing them. If the government's study concludes that broad-based option programs should be expensed, they likely will be. Meanwhile and forever, SOARA mandates the expensing of executive stock options.

The only correct and principled opposition to stock option expensing — that options are factually not a company expense — has been abandoned by the supporters of SOARA. If they advocate its repeal in a few years (ha!) when the political climate has cooled, they will have denied themselves their most powerful argument. Their other argument, that expensing options would harm the technology industry, is both irrelevant and toothless: If expensing really was the factually right thing to do, then the technology industry deserves to be hurt… and opposition to expensing is reduced to the pathetic whimper of "please lie to me, because the truth hurts too much." I would be ashamed to be associated with that position. I am sympathetic to a third argument, that the value of employee stock options cannot be measured accurately, but do not think it is strong compared to the principled objection.

It is only acceptable to compromise when both sides have some claim to truth or justice. In this instance, however, the opponents of stock option expensing are completely in the right. (They are correct despite themselves, when they argue about protecting the profits of technology companies.) No compromise is necessary or advisable. The FASB, along with legislators, simply need to be educated.

Help me to do so.

Tiny Island