The Daily Parker

The Mega Millions lottery, held in 42 states including Illinois, now has an estimated jackpot over $540m. (The amount will probably be higher as more people buy tickets.) But how much do you really get if you win?

First, you have to choose whether to get 26 annual payments or take the award as a lump sum. The lottery uses a discounted cash flow analysis so that the amount you get as a cash lump is worth the same as 26 equal payments of the whole thing. In other words, if you get a lump sum, you actaully only get the amount that the total award would be worth if you took it in the future.

Take that $540m prize. If you take it as an annuity over 26 years, you get 26 payments of just under $21m each. But a promise of $21m in 2038 is worth a lot less than $21m right now. Think about it: if you have that $21m today, instead of 26 years from now, you can make investments, give it away, buy a lot of stuff that gives you happiness, etc. So how much is $21m in 2038 worth right now? Only $10.7m. Or, put another way, if you take $10.7m in 2038 or $21m today, it's worth about the same—according to the lottery.

We can figure this out by looking at the lump-sum value you would get if you opted for it. If you won today's lottery, Mega Millions will give you $540m only if you take it in 26 payments. Or they'll give you a steaming pile of $389m in cash right now. Because to them, it's the same value.

Why? If you win, you have to make a bet on whether they've estimated something called the discount rate correctly. The discount rate is a guess about how much money will be worth in the future because of things like inflation and the risk that investments change in value. For example, if I bet on a discount rate of 4% (which is historically about middling in the U.S.), I'm betting money gets less valuable by about 4% per year on average. In that case, if I give you the option of taking $100 today or $104 a year from now, and you think the discount rate is 4%, it's an even bet. But if you think the discount rate is 3%, you would take the $104 in a year—because by your estimate, $100 invested today is only going to be worth $103 in a year.

Using a quick Excel function, I figured out that Mega Millions uses a discount rate of 2.6%, well below historical averages but close to what we've seen in the last five years. Here's the calculation:

Yeah, but watch this. If you increase the discount rate to 4%, the estimate of the present value of that $540m drops to $332m, a difference of $57m. In other words, because the lottery uses such a low rate, if you bet that the rate is 1.4% higher, you're betting that you'll come out ahead $57m by taking the money right now instead of over 26 years.

So, great, you're getting $389m in one big pile. Excellent.

Later today I'll talk about your Federal (36%) and Illinois (5%) taxes...and what they might do to the calculation.

The Atlantic has noticed a trend among millenials: they aren't buying as many cars as we did.

The Times notes that less than half of potential drivers age 19 or younger had a license in 2008, down from nearly two-thirds in 1998. The fraction of 20-to-24-year-olds with a license has also dropped. And according to CNW research, adults between the ages of 21 and 34 buy just 27 percent of all new vehicles sold in America, a far cry from the peak of 38 percent in 1985.

The billion-dollar question for automakers is whether this shift is truly permanent, the result of a baked-in attitude shift among Millennials that will last well into adulthood, or the product of an economy that's been particularly brutal on the young.

[But] Millennials are more likely than past generations to live in an urban community, and this may be part of what terrifies car markers. About 32 percent reside in cities, somewhat higher than the proportion of Generation X'ers or Baby Boomers who did when they were the same age, according to a 2009 Pew Research Center report. But as the Wall Street Journal reports, surveys have found that 88 percent want to live in an urban environment. When they're forced to settle down in a suburb, they prefer communities like Bethesda, Maryland, or Arlington, Virginia, which feature plenty of walking distance restaurants, retail, and public transportation to nearby Washington, DC.

Absent Parker, I don't know if I would own a car. With two ZipCar locations within 400 m of me, I'd hardly need one. My takeaway, however, is that we're becoming more urban, and that means less car-dependent. This is one American trend I particularly like.

Josh Marshall explains what the right has really been up to with judicial appointments:

he real issue has always been the regulatory state. In any case, it is the height of judicial activism for the Court to consider striking down legislation on grounds that was barely considered — certainly not in the mainstream of jurisprudence — only two years before when the legislation was being considered. But what struck me more was how the the critical questions from the conservative bloc on the Court grappled so little with the actual economic role of health care provisions in society and the systemic market failure. These would seem to be precisely the issues the Commerce Clause is meant to address. Simply because the problem is serious doesn’t mean every possible solution is constitutional. But again, no real grappling with the practical issues the law was meant to address but rather a hyper-focus on academic and ideological points.

The right wants to get and stay rich. That's it. And chipping away at regulations while reducing enforcement of existing regulations does exactly that.

If you want to see what it's like when the government stays out of business, just look at Russia. That's the society Grover Norquist wants us to have.

The Washington Monthly makes a case for it being a disaster for the medium markets:

St. Louis, for example, has seen “available seat miles”— an industry measure of capacity—fall to a third of their 2000 level, following the American Airlines takeover of TWA and Lambert International Airport’s subsequent downgrading as a mid-continental hub. Two of Lambert’s five concourses are now virtually empty, and another, which housed the TWA hub, is only partially used. A third runway—the building of which required demolishing hundreds of homes and cost local taxpayers a billion dollars to finish in 2006—is now redundant. “This scenario,” notes Alex Marshall, a senior fellow at the Regional Plan Association, “can be likened to states building highways and then having General Motors, Ford, and other auto companies suddenly telling their drivers to use different roads.”

St. Louis’s loss of service comes despite the fact that the population of the St. Louis metropolitan area, the eighteenth largest in the U.S., grew by more than 4 percent between 2000 and 2010. The city is also the home of eight Fortune 500 companies and is a major center for such international players as Anheuser-Busch InBev, Monsanto, Boeing, Emerson Electric, Express Scripts, and Nestlé Purina. The GDP of the metro area, which is also propelled by such large research institutions as Washington University and a fast-growing medical sciences sector, rivals that of oil-rich Qatar. Yet like most other midsize American cities, St. Louis’s economic development is now hostage to the shifting, closed-door deals and mergers of a mere handful of airline executives and their financiers. The prevailing mood was captured by a St. Louis Post-Dispatch editorial that quoted “The Serenity Prayer” in advocating philosophical acceptance of the distant forces shaping the region.

The article mentions other similarly-sized markets, like Cincinnati and Pittsburgh, facing the same problems. We take cheap air travel for granted here in Chicago, but as a traveling consultant for much of my career, I've seen the decline of other cities.

On the same theme of private control over what should be public resources, Paul Krugman today warns about the rise of private prisons and the closed-door deals that encourage them:

What is [the American Legislative Exchange Council]? Despite claims that it’s nonpartisan, it’s very much a movement-conservative organization, funded by the usual suspects: the Kochs, Exxon Mobil, and so on. Unlike other such groups, however, it doesn’t just influence laws, it literally writes them, supplying fully drafted bills to state legislators. In Virginia, for example, more than 50 ALEC-written bills have been introduced, many almost word for word. And these bills often become law.

[Y]ou have to think about the interests of the penal-industrial complex — prison operators, bail-bond companies and more. (The American Bail Coalition has publicly described ALEC as its “life preserver.”) This complex has a financial stake in anything that sends more people into the courts and the prisons, whether it’s exaggerated fear of racial minorities or Arizona’s draconian immigration law, a law that followed an ALEC template almost verbatim.

Think about that: we seem to be turning into a country where crony capitalism doesn’t just waste taxpayer money but warps criminal justice, in which growing incarceration reflects not the need to protect law-abiding citizens but the profits corporations can reap from a larger prison population.

We've been turning into a corporate-run country for so long we don't even notice it anymore. What baffles me, and saddens me, is how most people continue to support this trend indirectly, by voting for cynical politicians (I'm looking at you, Mr. Romney) who sound like social conservatives but really want to acquire wealth through political means. But that's a longer conversation.

Oh, my, where to begin?

Former vice president and war criminal Dick Cheney now has a heart. Here's video from the hospital:

Of course, we have to consider the donor:

And the long-term implications:

The New Yorker takes a look at why Mitt Romney seems so out of touch:

in the nineteen-seventies and eighties consultants tended to figure employees as simply part of a firm’s costs. In the whirlwind of creative destruction, employees are subject to the “churn”—the turnover that is an inevitable by-product of the struggle among firms to compete.

[O]f the approximately one hundred deals that Bain Capital made during Romney’s tenure there either lost money or only broke even, the successful deals were astronomically successful. Bain invested about two hundred and sixty million dollars in ten major deals under Romney’s direction, and it made nearly three billion. Annual return to investors was eighty-eight per cent.

And that, of course, is the goal of a private-equity business: maximizing the return on investment. Jobs may be “created” in the process—although sometimes jobs are lost, a company goes broke, and the private-equity firm still makes money. But a firm like Bain is concerned exclusively with buying low and selling high. Any other outcome it might pursue at the expense of that concern cheats its investors. This is why talk of job creation or job destruction in the companies Bain invested in is beside the point. Bain was not about jobs.

This is the guy most likely running against the President this fall. Does Mitt Romney care about you or your concerns? To him, the question itself doesn't even make sense.

I don't want to lose these things:

• The Economist hosted an online debate about aviation security between security expert Bruce Schneier and TSA director Kip Hawley.
• The Atlantic explains why conservatives are afraid of cities.
• a la card Chicago, which sells a deck of 52 $10-off coupons to area restaurants, has a one-day promotion today for 50% off. (Enter code "SPRING2012" in the appropriate box.

That is all. More UK and France photos later today.

The United Kingdom has no Constitutional prohibition against established religion; in fact, the head of state is also the head of the church. But the UK has a much deeper secular grain than we have, to the extent that many people in the country get quite exercised about even public prayer. The Washington Post explains the latest row:

Local lawmaker Clive Bone, an atheist, was backed by four of his peers in challenging the long-standing tradition of opening public meetings with blessings by Christian clergy. After losing two council votes on the prayer ban, Bone took the town to court — winning a ruling last month that appeared to set a legal precedent by saying government had no authority to compel citizens to hear prayer.

Bone, a transplanted Londoner and retired management consultant who has given up his seat on the council, said: “This isn’t about freedom of religion. I will defend their right to pray in their churches to my dying breath. Just don’t make us listen to it anymore. It is a backwards tradition that alienates people in this country.”

Most people I know in the UK say religion is entirely private, and would likely be offended at having to listen to prayers at minor public meanings. It's yet another example of how really out of step the rest of the Western world are with us.

As I mentioned last night, the U.S. Census Bureau uses a different algorithm to estimate world population than the U.N. So despite all the stories last October about the U.N.'s population estimate hitting 7 billion, the Census estimate hit 7 billion...about 20 seconds ago:

Thanks for playing. Check back in about 12 years for the 8th billion mark.

Back in October, the United Nations declared that the world population had hit 7 billion. The U.S. Census Bureau, however, believes differently. Here are the World and U.S. population clocks from a moment ago:

So, as far as the Census is concerned, we'll hit 7 billion tonight sometime.

That the Census didn't update its estimates to match the U.N.'s suggests they're confident of their more conservative model.