"Persons of the Year" -- and Forces of the Decade

Time Magazine, as you may be aware by now, chose Federal Reserve Chairman Ben Bernanke as its "Person of the Year". Despite the fact that he was not among our own nominees (see our post of December 10, below), we do agree with their choice, and for exactly the reasons they cite. Bernanke led the Federal Reserve in its extraordinary policies and actions to "save" the U.S. and world economies. Their article is quite good in documenting this, and we hope you will take time to read it. Here:
http://www.time.com/time/specials/packages/article/0,28804,1946375_1947251_1947520,00.html.

Bernanke has been widely criticized for both the seeming recklessness of the Fed's massive explosion of the money supply and for the fact that unemployment is still as high as 10%. But the policies have achieved – at least so far – a stabilization of the economy and the beginnings of a return to growth. This outcome contrasts with the Great Depression, when the Fed did not make such generous provisions and even raised its discount rate in view of the greater credit risk in the economy. The result only added to the catastrophe. This exact topic is one of Bernanke's chief research interests as an economist. Perhaps, as Time argues, there could have been no one better heading the Fed at this point in time. Really do it, read it for yourself. And as I've written here before, I don't want to even contemplate the alternative scenario to what the Fed did. Nor are they being foolhardy about the inflation potential, as every policy meeting in recent months has commented on ways to wind down and pull back on all the easy-money actions and some of their emergency programs are already being cut back.

Among Time's "runners-up" were two on our list, Nancy Pelosi and General McChrystal. The magazine highlights someone else of interest, Chinese workers. Isn't that intriguing? More comment on that will appear here at some point. Finally, Monday's Wall Street Journal has a special section reviewing "the aughts", the decade just coming to a close. The leader to that feature mentions two others on our list, reality TV and Susan Boyle. They go much farther than we did in the meanings of these two phenomena; there is great food for thought here:

"The first decade of the 21st century offered ample reminders that even with imperfections, human beings are capable of great triumphs. The aughts will be remembered for the greatest alleviation of poverty in the history of humankind, as the middle class swelled in China, India and elsewhere. It will be remembered for a long list of technological accomplishments . . . . In the U.S., it will be celebrated as the decade in which the nation took a huge step toward breaking free of its legacy of slavery and Civil War by electing a black president.

"And the supersized dose of reality dumped on us during the decade is now informing a search for new answers, new approaches, new models, all based on a better understanding of human nature. . . .

"The hopeful embodiment of this new tone surfaced at the end of the decade, in the person of an unmistakably real woman named Susan Boyle. Never in a thousand decades would she have been cast for a leading role by Hollywood. Yet her performances . . . reminded us that you don't need fantasy to create success. Reality will do just as well."

Merry Christmas from Ways of the World!

Charity Finances: A Resource for Year-End Giving

A reader of Joanna Depue's "More or Less Church" wrote to her last week about a post on MOLC from several months ago about Episcopal Relief and Development. The woman indicated that she had looked at ER-D's "990s" and was surprised at how high the staff salaries are. She was dismayed about that use of funds and was now hesitant to give to them.

Obviously, we all wanted to know what the woman, Ann, was talking about, since it's our impression that ER-D is a well-run institution. So, as the local numbers person, I said I would check it out. What follows responds to Ann's comments and also presents some general information that you might find helpful as you plan your own year-end charity donations to whatever organizations you might support.

What Is a 990?
First, "990" is the IRS form that tax-exempt organizations file every year instead of a tax return. It is very detailed. The form alone is 11 pages long. The total submission, including supporting schedules, runs much more than that. ER-D's for 2008 is 53 pages long, and the Heifer Project, which I chose for comparison, is 54 pages. The form asks about the charity's purpose and for a list of activities undertaken toward that purpose. It asks about officers, by name, and their salaries, and it asks a series of policy questions, including the general basis for establishing those salaries. The form says right at the top "Open to Public Inspection" and among those policy questions is one asking how people get access to the form. In ER-D's case, the form is available through a link right on the homepage of the website. Here, right in the middle. In the website's "About Us" section, there are links to the previous six years of these statements.

Part IX of the 990 concerns the charity's expenses by type – grants it makes, benefits it pays, purchases, employee compensation, etc. And it asks the charity to specify the division of those expenses into the actual running of programs, administration of the organization and fundraising.

For ER-D, we see that the Executive Director makes over $200,000 in salary and benefits, and several other top officers have compensation of $100,000 or more. These figures might well seem startling. At the same time, we also see that total outlays run to nearly $29,000,000, of which about 5% is administration and 10% goes for fundraising. Those numbers and ratios make it look that the organization might not be so profligate. How can we judge this?

ER-D has two designations that give us a way to get to some comparative information without having to comb through the 990s for all the charities we might be interested in.

The Better Business Bureau Seal
ER-D carries the seal of the Better Business Bureau as an "Accredited Charity". The BBB's "Wise Giving Alliance" has established 20 standards for good practice by charities. These involve governance, management of expenditures, reporting accuracy and public disclosure. Reports on conformity with these standards appear on the BBB website for more than 1,000 organizations. These reports are quite specific about ones that do not conform and what the failings are. The Wise Giving people conduct the "BBB seal program" among the institutions that meet all 20 standards and then submit material for periodic reviews of their compliance. Charities that are eligible for the seal must apply for it and pay a fee to display it, and not all of them choose to do that. Here is a link to the relevant section of the BBB website where all of this is explained.

Charity Navigator Ratings
ER-D also has a numerical rating from a group called Charity Navigator. This organization was formed in 2001 to do exactly what we want to do here, make comparisons among charities for the quality of their operations. They comb through the IRS 990s for over 5,400 organizations of all kinds: arts, colleges, health researchers, patient support organizations, animal rescue funds, libraries and – among numerous other categories – development and relief organizations. Their rating system examines ratios of program expense to total expenses (more is better), administrative expense to total expense (less is better), fundraising to total expense, revenue growth and expenditure growth, and fundraising efficiency, that is, how much the organization spends to raise $1 in donations. Financial management measures include how many years' worth of operating expenses the charity has in cash assets (more is generally better) and a negative item for running persistent operating deficits. These ratios and measures are put onto a numerical scale and added up. Charities are assigned a number of stars, from zero to 4, corresponding to the sum total of points they achieve. This assessment, because it is based on numerical measures, is almost totally objective, and the scores allow individual organizations to be compared to overall nonprofit finances as well as their own category.

For 2007, the latest rating available, Episcopal Relief and Development had 61.19 points and received 4 stars. Many charities in the category of international relief and development did receive this highest rating, 117 of 207, although some well-known ones, including the Heifer Project (55.25) and Lutheran World Relief (59.26) come in with 3 stars. The differences compared to ER-D include proportionately higher fundraising expenses for Heifer and almost no program expansion at the Lutheran charity. Heifer and ER-D have both been growing rapidly. The Lutheran group, however, has one of the highest numerical scores for management efficiency, and as you see, its total is less than 2 points lower than ER-D's. In the total scoring, the charity next above ER-D is Doctors Without Borders, at 61.23 points.

Visit Charity Navigator. Browse to your heart's content there. It's a fascinating and informative site. www.charitynavigator.org.

Do CEOs Make Too Much Money?
Now, about those officers' salaries. Charity Navigator has also done some comparisons of CEO pay. This is a matter of some concern for donors, including the woman Ann whose query to More or Less Church started this topic for us. She's not alone. On the webpages where each charity is discussed, there's a "Comments" tab. On Heifer's page these comments constitute a real debate about whether relatively large expenses, including the CEO's salary, are valuable. On the ER-D page, there are five comments, all expressing some degree of distress that officers of an anti-poverty organization make such "big bucks", and writers are in fact disappointed that ER-D's pay scale seems not any more restrained than Heifer's.

Our commentary here so far, based on the Better Business Bureau and Charity Navigator analyses, suggests these ER-D salaries are not out of line. Navigator has gone further in classifying the salaries; they have calculated averages on three bases: the category of the charity's activities, size and location of headquarters. In the 2009 CEO Compensation Study, the average among CEOs at all 5,448 institutions is $158,075. By category, salaries at international relief agencies do tend to be lower, $131,096. But size and geography more than counter-balance that. For all those organizations larger than $13.5 million in expenses, the average is $286,760. And for all those located in New York City, the average is $220,735. So by those comparisons, the ER-D President, at about $220,000, is only average for New York and well below average for the size of the operation he is responsible for managing.

And this very last phrase is an important one. The Navigator analysts explain to us that we potential donors often miss one of the main aspects of charity administration. The executives who run these operations do very much the same kind of work as executives of profit-making companies. They manage employees and – especially in the case of something like ER-D – they coordinate very complex world-wide undertakings. They need to have highly professional skill-sets and extensive experience. So we can hardly expect to pay them a substandard wage. Indeed, the Navigator people say, in underlined text, "You're better off supporting a charity that is fiscally efficient, achieving its programmatic goals and paying its CEO well, than a charity that has substandard fiscal health, fails to live up to its mission, but under-pays its CEO." Right. Just ask a family in Africa who's getting mosquito nets from ER-D.

One other notion. These statements and data all cover 2007 and 2008. The financial world and the world economy has, of course, looked very different in 2009. So we need to monitor all of this as later information becomes available. Deficits and income and outgo have likely changed a lot this year, and not for the better. In the meantime, if you are able, support the charity of your choice. They really need it.

Some Nominees for "Person of the Year"

Last week, I indicated that I expected to post some discussion of the latest employment data following the Labor Department's release of November figures last Friday. In the interim, I have been on Jury Duty in Brooklyn, and that has lasted longer and been more fatiguing than I had expected. In addition, the Labor Department published even more information than usual in some follow-up reports and the President has spoken about labor market conditions. So there's considerable material, and we'll dig into it on the coming weekend and bring you our thoughts about employment, unemployment and jobs.

While my brain was absorbed with the car-truck collision that was the subject of the court case I sat through, it occurred to me -- through no particular rational connection -- that this is the time of the year when we hear about the most influential people of the year or the most important or simply, "the person of the year". I conjured some nominations for the year-end cover of Time Magazine. Now, Time has their own set of nominations [here], and they welcome you to "rate" them and "vote" for your favorite. Some of them agree with my conjurings. Some of them are very interesting. Voting, though, makes it more like a popularity contest, and I'm not sure that's the real intention. It's certainly not my intention, as you can see in my list. [This text has been modified somewhat from the original. I discovered Time's nominee list only after I put up the first version of these comments.]

Time's designation is not a prize or award for the "best". Hitler and Stalin were named in 1938 and 1939, respectively, Putin in 2007 and George W. Bush in 2000 and 2004. Also, as far as I can tell, no one has received the distinction two years in a row. So it is unlikely that Barack Obama would be named again this year. [Here's the list, so you can see, if you like: http://www.time.com/time/personoftheyear/archive/stories/.] Given these notions, here are my ideas:

Harry Reid & Nancy Pelosi

The Unemployed

Producers of "reality" TV shows: what kind of statements are they making about society? What kinds of behavior are they encouraging in people?

Fox News and its commentators

In another vein, and perhaps together,
Capt. Chesley Sullenberger
Susan Boyle
who gave, in varying amounts and no particular order, heroism, joy and goodness, at a time when we needed all of those things a lot.

People who are interesting, but whose designation this year might be premature:
General Stanley McChrystal
The Tea Party organizers

Finally, no one has been honored posthumously; otherwise, we'd obviously put forth Ted Kennedy.

What do you think of these? Whom would you nominate to be on the cover of Time Magazine? Let us know your ideas!

A Positive Spin on World AIDS Day

All of a sudden it's gotten to be December. I haven't put anything here for three weeks. Did I forget? I don't think so. Actually, I have been writing, but that text is not yet ready for public consumption. It's one of the chapters of – as a friend termed it the other day – "the Great American Economics Book" that Mother Crafton and I think we're doing together. I'm excited about this project, though there is yet no real timetable to talk about. But I've written several thousand words about "Government" and this latest is the part about "Business", an apologia for profit-making pursuits, if you will. So stay tuned for hints on how it's going.

Meantime, today is World AIDS Day, and there are certainly some things I can say about that. We are heartened by a story on the Wall Street Journal website [here] about Jacob Zuma, the new president of South Africa, authorizing more advanced treatment there for both HIV and AIDS patients. Children born HIV-positive will start getting anti-retroviral drugs as soon as it's medically advisable. Mr. Zuma himself will be tested for HIV, almost certainly a symbolic act, but in Africa an important statement indeed about the importance of proper diagnosis and treatment. He must be the first Head of State in the world to be so tested.

I also think today of some of my friends who have lived for years – perhaps we can even say decades now – with HIV, reflecting the success of those very anti-retroviral drugs. Those guys take handfuls of pills every single day, but they live and move and have their being, just like the rest of us. Wow! More power to them!

Whoever thought we could say positive, constructive things about the efforts on the AIDS front? But we can, and somehow, it makes sense to have the world's commemoration of those efforts come on December 1st, right after Thanksgiving and at the beginning of Advent.

On more mundane matters, the U.S. Labor Department will issue the monthly "employment situation" report this coming Friday, so you will hear from us next week with an update on unemployment and jobs. No one thinks employment will have increased, but consensus forecasts by Wall Street economists look to the smallest monthly decline since January 2008. Let's hope they're right!