Carnival of Liberty
I am way overdue promoting the Carnival of Liberty. This week it is hosted by Target Centermass, and it has a nice selection of posts related to free markets and individual rights. As the Carnival of the Capitalists has shifted more towards investing and personal finance submissions, this newer carnival has lots of good posts on fundamental issues of Life, Liberty, and Property.
Fake but Accurate, Early 20th Century Style
Were Sacco and Venzetti really guilty? I you are like me, you hear those names and say - boy, those names sound familiar. I am sure they came up some time in my US history class in high school...
Sacco and Vanzetti were early 19th century anarchists executed in Massachusetts for robbery and murder. Fellow communist, anarchist and author Upton Sinclair helped to generate a lot of sympathy for the two, raising a storm of protest that the two were innocent of the crime and were being tried and executed for their political beliefs. They have been heroes of the left and the progressive movement ever since.
Asymmetrical Information points to this article, which describes new papers that apparently belonged to Upton Sinclair that make it clear that Sinclair actually discovered that Sacco and Venzetti were indeed guilty:
Soon Sinclair would learn something that filled him with doubt. During his research for "Boston," Sinclair met with Fred Moore, the men's attorney, in a Denver motel room. Moore "sent me into a panic," Sinclair wrote in the typed letter that Hegness found at the auction a decade ago.
"Alone in a hotel room with Fred, I begged him to tell me the full truth," Sinclair wrote. " … He then told me that the men were guilty, and he told me in every detail how he had framed a set of alibis for them."
Sinclair decided that, for the benefit of the "movement", as well as his sales, not to reveal the truth
"My wife is absolutely certain that if I tell what I believe, I will be called a traitor to the movement and may not live to finish the book," Sinclair wrote Robert Minor, a confidant at the Socialist Daily Worker in New York, in 1927.
"Of course," he added, "the next big case may be a frame-up, and my telling the truth about the Sacco-Vanzetti case will make things harder for the victims."
He also worried that revealing what he had been told would cost him readers. "It is much better copy as a naïve defense of Sacco and Vanzetti because this is what all my foreign readers expect, and they are 90% of my public," he wrote to Minor.
This all resonated with me because I recently had an email exchange with a reader who reminded me of this quote:
We have to offer up scary scenarios, make simplified, dramatic statements, and make little mention of any doubts we have. Each of us has to decide what the right balance is between being effective and being honest.
- National Center for Atmospheric Research (NOAA) researcher and global warming action promoter, Steven Schneider
No one knows better than a blogger that everyone picks and chooses the news they want to notice and the facts they promote and don't promote. But at some point on the slippery slope you hit a transition to outright dishonesty. It seems that this temptation to support your cause with a fake story was not invented by Mary Mapes.
California State Government Consumer Fraud
You gotta love the government. In September, the State of California sent me a check for $81 as a tax refund. I did not file for the refund -- they sent the check out of the blue. Since no one human being is smart enough to keep up with all the taxes and user fee formulas in California, I just accepted it, cashed the check and forgot about it. This refund was for my unemployment taxes, and I just assumed my rate had changed slightly leading to a refund.
Then, in December, the State of California sent me a notice that the $81 was in error, and I needed to send it back.
OK so far, I guess, though they seem a little Keystone Cops with this. But here is the good part- they claim I owe interest and penalties for holding their $81 since September, despite the fact they sent me the check out of the blue and it was their error. LOL. If this was a lot of money and not just $15 in interest and penalties (equaling a 97% implied APR) I would freak out, but at this level its just kind of funny. I mean, if I as a company was running this scam with consumers, sending them refund checks and then asking for the money back 3 months later with interest and penalties,I would be going to jail, would I not?
More Price Gouging Shenanigans
This holiday season, several gasoline retailers found extortion notes from the state AG in their stockings. In Illinois:
Illinois State Attorney General Lisa Madigan asked 18 operators whose prices jumped significantly after Hurricane Katrina to donate $1,000 to the American Red Cross or risk a potential consumer fraud lawsuit, reports the Chicago Tribune.
I would define consumer fraud as getting something from a retailer different than was promised. I am not sure how it is fraud if retailers put their prices on a great big sign right on the street, and then actually charge those prices as promised. Unfortunately, we seem to have filled positions of political power with the economically ignorant, who are stuck on cost-based pricing:
"When we're in an emergency situation, such as we were, retailers have the obligation not to increase their prices to the general public over what wholesalers are charging them," Hagan told the Associated Press.
Uh, why? Retailers move their markup around all the time. Most every retailer has drastically higher markups on December 1 for Christmas tree ornaments than they do on December 27, but no one seems to complain. Workers increased the price of their labor post-Katrina, sometimes by a factor of three, and their costs weren't going up at all, so why weren't they gouging? Its just bizarre how we treat gasoline so much different than every other product we buy. Perhaps its because they are the only retail product that actually posts their current prices right on the street.
As I read this article, AG Hagan reminded me of my least favorite Aspiring Governor, fellow Princetonian and enemy-of-Antarctica Eliot Spitzer. So it was funny when the article continued on to discuss similar actions taken by Spitzer. This was the quote I loved:
Spitzer told the Press & Sun-Bulletin that he "hoped it would send a clear message to others that 'you cannot, under New York law, use an environmental emergency to raise prices.'"
OK, but can I use a massive supply-demand imbalance caused by an environmental disaster to raise prices? And I sure bet that politicians can use an environmental emergency to raise taxes (in fact, since NY's gas tax is a percentage of the price rather than fixed, the state of NY did indeed contribute to the post-Katrina price hike).
Here is my quote back to Mr. Spitzer:
"I hope to send a clear message that the state Attorney General position cannot be used for grandstanding forays against innocent but unpopular business entities* in order to raise one's profile to run for higher office"
*See Dick Grasso, Microsoft, et al.
Online Form Spam
Last week when I hosted Carnival of the Capitalists, I noticed that bots were submitting Conservative Cats form with spam entries - like having "cheap viagra" in all the fields. Then, this week, I found that at an application site for camp host jobs that I run has been getting the same type of spam. I am not talking about email - I am talking about data base entries coming back with spam in them.
Why? I presume someone went through the time to program the bots, but what does it accomplish to dump your cheap viagra url into a bunch of online forms for memberships and applications.? Its just some sysop who is going to see it. I can't believe this sells anything -- for me, its more like graffiti than real advertising.
Update: OK, I am clued in. Apparently it is comment-spam bots that think these forms look like blog comments and are filling them in to try to get the site-link SEO bounce. So now I need to figure out how to make my form look less like a blog comment form, I guess.
I think that that FIRE, the Foundation for Individual Rights in Education, does a really nice job defending speech across the political spectrum on campuses. I was struck in particular by this post on their blog, about Worcester Polytechnic Institute, a private university in Massachusetts. Speech rights at private institutions (such as on the job) are often an area where "civil rights" groups trip over themselves.
I thought FIRE did a nice job with its WPI analysis:
as a private institution, WPI is not bound by the U.S. Constitution, and WPI takes full advantage of that by stripping its students of their First Amendment rights. WPI doesn’t try to hide this fact, either. Unlike many private universities, its website makes no promises that students will have the constitutional rights that they enjoy in society at large. Moreover, it prominently advertises that “[s]tudents enter WPI voluntarily…If they do not like some of the rules, regulations, traditions, and policies of WPI, they do not have to enter,” and that “membership in this particular academic community is freely sought and freely granted by and to its members, and…within this membership group certain specific behaviors that may be accepted by society in general cannot be accepted within an academic community without hindering the explicit goals of that academic community.”As a private institution, Worcester is acting within its rights: it advertises its repression and censorship right up front. WPI doesn’t promise you free speech, and you won’t get it. That’s why FIRE doesn’t rate WPI a “red light”— when a private university states clearly and consistently that it holds a certain set of values above a commitment to freedom of speech, FIRE does not rate that university. But we still think you should know what to expect when you get there.
Good for FIRE. It achnowleges that WPI as a private institution has the right to set its own rules and terms and conditions, as long as those are clear up front. FIRE doesn't like these rules (I don't particularly either) but it limits itself to speaking out against them, rather than filing legal actions as it might in the case of public universities which, by law and by court precedent, can't place artifical limits on first ammendment rights.
Our Government in Action
A few weeks ago I responded to Economist Philip Verleger, a classic technocrat, who lamented what private industry had done with the auto industry and felt government run by smart people like himself could do better:
Suppose a government plan could revitalize the automobile industry and the rest of the transportation sector, encouraging it to leapfrog several generations of technology; suppose this same plan could cut U.S. dependence on foreign oil to zero; and suppose, finally, that the plan could develop new technologies that would bump our economy to a higher growth path and foster U.S. economic leadership in the 21st century. Would that idea be worth exploring?
I am not sure there are that many adults who don't also believe in Santa Claus who can imagine the government succeeding at this, but in case there are, here are some further thoughts on government efficiency:
But while Harrison County and all but one of its cities hired contractors on their own, Jackson County and its cities, at the urging of the federal government, asked the Army Corps to take on the task. Officials in Jackson County said it was a choice they had regretted ever since.
The cleanup in Jackson County and its municipalities has not only cost millions of dollars more than in neighboring counties, but it is also taking longer. The latest available figures show that 39 percent of the work was complete in Jackson County, while 57 percent was done in Harrison County and its cities that are managing the job on their own, according to federal records....
Pascagoula and other Jackson County cities are sticking with the corps. But City Manager Kay Kell of Pascagoula said she was disappointed. Her city had a private contract to clean debris for $7.80 a cubic yard, but now relies on the corps, which is paying its contractor $17 to $19 a cubic yard for the same work....
Officials in Jackson County and Pascagoula cite numerous reasons for the delays.
One is the complexity of the contract the Corps of Engineers has with Ashbritt, a Pompano Beach, Fla., company that is overseeing the debris collection in Mississippi and parts of Louisiana. Its 192 pages include sections on the type of office paper the company uses and a ban on releasing information to the news media without the written permission of the Army Corps. (Ashbritt officials declined to comment for this article.)
Simply getting an agreement from the Army Corps on the exact wording for the legal release document that residents must sign to authorize contractors to clear their homes took several weeks, officials said.
Then the Army Corps and its federal partners repeatedly gave new demands, such as satellite-based measurements on the location of each house, before large-scale clearing could start, county officials said.
An African Holiday is a Great Idea, But the Principles of Kwanzaa Suck
This article has become an annual tradition at Coyote Blog, I guess to make sure I start the new year with plenty of hate mail.
The concept of a cultural celebration by African-Americans of themselves and their history is a good one. Whenever I write about blacks in America, much of the email I get tries to educate me in how much the "lost heritage" issue matters to African-Americans, a concept I have never fully grasped since I am happy, after the 20th century, to leave behind my German heritage. Even if I'm not into it, I have no problem with people of any ethnic group or race or whatever creating a holiday. Life is worth celebrating, as often as possible, even if we have to make up new occasions.
The specific values celebrated in Kwanzaa, however, suck. They are socialist-Marxist-collectivist-totalitarian crap. Everyone seems to tiptoe around Kwanzaa feeling that they have to be respectful, I guess because they are fearful of being called a racist. However, I find it terrible to see such a self-destructive set of values foisted on the African-American community. These values are nearly perfectly constructed to keep blacks in poverty - just look at how well these same values have played out in Africa.
To begin, its important to understand that Kwanzaa is not some ancient African ethno-cultural tradition. Kwanzaa was made up in 1966 by Dr. Maulana Karenga. Karenga was a radical Marxist in the 60's black power movement. Later, Karenga served time in jail for torturing two women:
Deborah Jones ... said she and Gail Davis were whipped with an electrical cord and beaten with a karate baton after being ordered to remove their clothes. She testified that a hot soldering iron was placed in Miss Davis' mouth and placed against Miss Davis' face and that one of her own big toes was tightened in a vice. Karenga ... also put detergent and running hoses in their mouths, she said."
Interestingly, after this conviction as well incidents of schizophrenia in prison where "the psychiatrist observed that Karenga talked to his blanket and imaginary persons and believed that he had been attacked by dive-bombers," California State University at Long Beach saw fit to make him head of their Black Studies Department.
Anyway, I give credit to Karenga for wanting to create a holiday for African-Americans that paid homage to themselves and their history. However, what Karenga created was a 7-day holiday built around 7 principles, which are basically a seven step plan to Marxism. Instead of rejecting slavery entirely, Kwanzaa celebrates a transition from enslavement of blacks by whites to enslavement of blacks by blacks. Here are the 7 values, right from the Kwanzaa site (with my comments in red italics):
To strive for and maintain unity in the family, community, nation and race
On its surface, this is either a platitude, or, if serious, straight Marxism and thoroughly racist. Think about who else in the 20th century talked about unity of race, and with what horrible results.
In practice, the notion of unity in the black movement has become sort of a law of Omerta -- no black is ever, ever supposed to publicly criticize another black. Don't believe me? Look at the flack Bill Cosby caught for calling out other blacks.
To define ourselves, name ourselves, create for ourselves and speak for ourselves
Generally cool with me -- can't get a libertarian to argue with this. When this was first written in the 60's, it probably meant something more revolutionary, like secession into a black state, but in today's context I think it is fine.
Ujima (Collective Work and Responsibility)
To build and maintain our community together and make our brother's and sister's problems our problems and to solve them together
Um, do I even need to comment? This is Marxism, pure and simple.
Ujamaa (Cooperative Economics)
To build and maintain our own stores, shops and other businesses and to profit from them together.
OK, I said the last one was Marxism. This one is really, really Marxism.
To make our collective vocation the building and developing of our community in order to restore our people to their traditional greatness.
There's that collectivism again
To do always as much as we can, in the way we can, in order to leave our community more beautiful and beneficial than we inherited it.
I guess I don't have much problem with creativity and make things better. My sense though that if I was to listen to the teaching on this one in depth, we would get collectivism again.
To believe with all our heart in our people, our parents, our teachers, our leaders and the righteousness and victory of our struggle.
What about in ourselves as individuals? Through all of this, where is the individual, either individual responsibility or achievement? It is interesting that a holiday that was invented specifically to be anti-religious would put "faith" in as a value. In fact, Karenga despised the belief in God as paying homage to "spooks who threaten us if we don't worship them and demand we turn over our destiny and daily lives."
However, this is in fact very consistent with the teachings of most statists and totalitarians. They tend to reject going on bended knee to some god, and then turn right around and demand that men go on bended knee to ... them, or other men. This is in fact what this "faith" was about for Karenga - he is a statist laying the foundation for obedience to the totalitarian state. He wants blacks to turn over their destiny and daily lives to their leaders, not to god.
So, in conclusion, Kwanzaa was designed as a celebration of creating a totalitarian collectivist Marxist racist state among African-Americans. I may well get comments and emails that say "oh, that's not how we celebrate it" and I will say fine - but Marxism is the core DNA of the holiday, a holiday created by a man who thought Lenin and the Black Panthers were all wimps.
Never wishing to criticize without suggestion a solution, here are alternate values I might suggest:
Freedom - Every individual is his own master. We will never accept any other master again from any race (even our own). We will speak out against injustices and inequalities so our children can be free as well.
Self-Reliance - Each individual will take responsibility for their life and the lives of their family
Pride - We will be proud of our race and heritage. We will learn about our past and about slavery in particular, so we will never again repeat it.
Entrepreneurship - We will work through free exchange with others to make our lives better and to improve the lives of our children
Education - We will dedicate ourselves and our time to education of our children, both in their knowledge and their ethics
Charity - We will help others in our country and our community through difficult times
Thankfulness - Every African-American should wake up each morning and say "I give thanks that my ancestors suffered the horrors of the middle passage, suffered the unforgivable indignity and humiliation of slavery, and suffered the poverty and injustices of the post-war South so that I, today, can be here, in this country, infinitely more free, healthier, safer and better off financially than I would have been in Africa."
By the way, if you doubt that last part, note that in the late 90's, median per capita income of African Americans was about $25,000, while the per capita income of Africans back in the "old country" was around $700, or about 35x less. Note further this comparison of freedom between the US and various African nations. Finally, just read the news about the Congo or Rwanda or the Sudan.
Oh The Weather Outside is Frightful...
Merry Christmas from Paradise Valley and the Coyote Clan! Every year for our Christmas card, we try to do something unique. We always end up with a homemade card that costs 10x more than a nice store-bought one. This year was no exception, burning through any number of expensive HP ink cartridges. I used a neat free program called Andrea Mosaic that creates a photo mosaic of any picture you choose using a folder full of secondary pictures used as the tiles. This is a very easy project with the free software and I have found it a sure-fire way to impress people. Nothing a geek loves more than the reaction of "How did you do that?"
Also, I think I set the record for most pictures of my kids included in a single Christmas card, with something like 300 in this mosaic.
Update: Actually, I see that this is an older version, since I can see side-by-side picture repeats in the mosaic and in a later version I learned to make the program not do this, but you get the idea.
Political Party as Fashion Statement
A while back I lamented that so few people actually strive to maintain a consistent personal philosophy, rather than a hodge-podge of isolated political views. In this context, I thought the profile of "progressive" Markos Moulitsas Zuniga (the Daily Kos) by the sympathetic progressive-liberal Washington Monthly was interesting. For example:
The younger-than-35 liberal professionals who account for most of his audience seem an ideologically satisfied group, with no fundamental paradigm—changing demands to make of the Democratic Party. They don't believe strongly, as successive generations of progressives have, that the Democratic Party must develop more government programs to help the poor, or that racial and ethnic minorities are wildly underrepresented, or that the party is in need of a fundamental reform towards the pragmatic center—or at least they don't believe so in any kind of consistent or organized manner. As this generation begins to move into positions of power within the progressive movement and the Democratic Party, they don't pose much of a challenge on issues or substance. So the tactical critique takes center stage. Moulitsas's sensibility suits his generation perfectly. But it also comes with a built-in cost. Moulitsas is just basically uninterested in the intellectual and philosophical debates that lie behind the daily political trench warfare. By his own admission, he just doesn't care about policy. It's here that the correlation between sports and politics breaks down. In sports, as Vince Lombardi is said to have put it, “Winning isn't everything, it's the only thing.” When the season is over, you hang up your cleats and wait for the next season. But in politics, that's not the case—you have to govern, and if you don't govern well, you won't get reelected. So while tactics and message are crucial, most voters will ultimately demand from politicians ideas that give them a sense of what a party is going to do once in power. Wanting to win very badly is an admirable and necessary quality in politics, and Moulitsas is right that Democrats have needed it in greater quantity. But it is not really a political philosophy.
This article tends to reinforce a notion I have had of late, that is a trend toward political party as fashion statement. For example, I get the impression that many of Kos's audience call themselves Democrats more because of the statement they think it makes about themselves rather than a thought-out comparison of the various party's positions and how they stack up vs. their own thought-out philosophy. I am starting to sense that people choose parties for their brand-image rather than for the actual positions or people who represent them. Democrat might mean "I am smarter than you", "I am with-it and cool", "I am dynamic" while Republican might mean "I am patriotic", "I am moral", "I am level-headed". By the way, don't send me mail for the wrong reasons -- I am not saying the parties actually consistently meet these images, I am just saying that a large number of people seem to adopt their party to make these kind of statements about themselves.
Postscript: If you think I am exaggerating, then someone needs to explain to me how a Democratic president can send us to war in Bosnia with Republicans opposing and then have a Republican president send us to war in Iraq with Democrats opposing when at the 40,000 foot level they are the same freaking war (US intervention to unseat a genocidal dictator with at best unclear UN mandate and opposition from key European nations). I keep coming back to the simplistic explanation that the default political position is "I got my guy's back no matter what, and you guys suck no matter what", which I admit effectively compares the current political discourse to the chants at a Michigan-Ohio State football game, but I'm going to go with it.
PPS- As a good libertarian, though, I am happy to know that young progressives are not necessarily pushing for more state control.
Phoenix POW Escape -- December 23, 1944
Today is the anniversary of one of my favorite bits of Phoenix history. Many people have seen the Steve McQueen movie "the Great Escape", about a group of 60 or so prisoners who cleverly dug a tunnel out of a German POW camp and escaped in various directions across Europe, many of whom where eventually recaptured.
I don't know if such an event occurred in Europe, but an almost identical real-life POW escape (tunnel and all) occurred right here in Phoenix, Arizona almost exactly 60 years ago.
Like many isolated western towns in WWII, Phoenix played host to a number of German POW's, in our case about 1700 in Papago Park. Phoenix, and in particular Papago Park, with its arid climate and red rocks, must have been quite a culture shock to the Germans.
Anyway, I won't tell the whole story, but it is fascinating and you can read it all here. A short excerpt:
The German prisoners asked their guards for permission to create a volleyball courtyard. Innocently obliging, the guards provided them with digging tools. From that point on, two men were digging at all times during night hours. A cart was rigged up to travel along tracks to take the dirt out. The men stuffed the dirt in their pants pockets which had holes in the bottoms, and they shuffled the dirt out along the ground as they walked around. In addition, they flushed a huge amount of dirt down the toilets. They labeled their escape route Der Faustball Tunnel (The Volleyball Tunnel).
They dug a 178 foot tunnel with a diameter of 3 feet. The tunnel went 8 to 14 feet beneath the surface, under the two prison camp fences, a drainage ditch and a road. The exit was near a power pole in a clump of brush about 15 feet from the Cross Cut Canal. To disguise their plans, the men built a square box, filled it with dirt and planted native weeds in it for the lid to cover the exit. When the lid was on the tunnel exit, the area looked like undisturbed desert.
There is some dispute about how many people actually escaped -- official records say 25. Others argue that as many as 60 escaped, but since only 25 were recaptured, 25 was used as the official number to cover up the fact that German POW's might be roaming about Arizona.
The prisoners who led this escape were clearly daring and inventive, but unfortunately in Arizona lore they are better known for their one mistake. Coming from wet Northern European climes, the prisoners assumed that the "rivers" marked on their map would actually have flowing water in them. Their map showed what looked like the very substantial Salt River flowing down to the Colorado River and eventual escape in Mexico. Unfortunately, the Salt River most of the year (at least in the Phoenix area) is pretty much a really wide flat body of dirt. The German expressions as they carried their stolen canoes up to its banks must have been priceless.
It never occurred to the Germans that in dry Arizona a blue line marked “river” on a map might be filled with water only occasionally. The three men with the canoe were disappointed to find the Salt River bed merely a mud bog from recent rains. Not to be discouraged, they carried their canoe pieces twenty miles to the confluence with the Gila river, only to find a series of large puddles. They sat on the river bank, put their heads in their hands and cried out their frustration.
We probably shouldn't make too much fun of these hapless U-boaters, living in a land so far out of their experience: Apparently the prison guards made Sargent Schultz look like Sherlock Holmes:
Although the men left in the wee hours of Christmas Eve, the camp officials were blissfully unaware of anything amiss until the escapees began to show up that evening. The first to return was an enlisted man, Herbert Fuchs, who decided he had been cold, wet and hungry long enough by Christmas Eve evening. Thinking about his dry, warm bed and hot meal that the men in the prison camp were enjoying, he decided his attempt at freedom had come to an end. The 22-year old U-boat crewman hitched a ride on East Van Buren Street and asked the driver to take him to the sheriff’s office where he surrendered. Much to the surprise of the officers at the camp, the sheriff called and told them he had a prisoner who wanted to return to camp.
One of the last to be re-captured was U-boat Commander Jürgen Wattenberg, the leader of the breakout. Interestingly, Captain Wattenberg hid out in the hills just a few hundred yards from my current home.
Note: I self-plagiarized this story from a post I made a year ago. If the repetition bothers you, I am happy to refund you the full subscription price you paid for this site.
Sarbanes-Oxley and Enron
Personally, I think you are insane to be a CEO or a board member of a public company under Sarbanes-Oxley. There is no way I am going to sign a document on threat of prison that no one of the thousands of employees who work for me did anything to screw up the books. Heck, I run a private company owned only by me where there is no incentive other than to report the numbers like they are, I sit next to my bookkeeper who is the only other one who touches the books, and I still find errors from time to time in past periods.
But what got me going on this post was a TV interview I tuned in the middle of last week. I can't find a version online or even the name of the people interviewed, but the gist of the discussion was how Sarbanes-Oxley was going to prevent Enron-type situations that bankrupt investors.
I wonder how many people believe this? Because Enron was going down, with or without the accounting shenanigans. Its trading-based business model followed a life-cycle that should be familiar to anyone who has been in trading -- that is, they had unbelievable margins early on, but as others figured out what they were doing and duplicated it, the margins narrowed. As trading margins narrow, the only way to maintain profits is to increase volume, leveraging up your capital into larger and larger trades at narrower and narrower spreads. This volume strategy requires a very low cost of capital, which means low borrowing costs and a high stock price. By hiding debt and losses in off-book subsidiaries, the Enron managers may have delayed the ultimate reckoning (by keeping equity prices high and its bond yields low), but the accounting games were not the cause of the failure. In the same way, the march of long distance rates towards zero ultimately brought down Worldcom, not accounting. In the latter case, if you borrow lots of money to buy long-distance companies, as Worldcom did, assuming say 20 cent per minute long distance rates and then the rate goes to 5 cents, you are probably in trouble.
I am all for curbing the imperial CEO and giving shareholders and boards more power to police accounting and establish transparency. I am not sure SarbOx does any of this. My gut feel is that five years from now we will view SarbOx as more of an enabler for state attorney general self-promotion (as each races to try to prosecute some high-profile CEO for arcane accounting errors) and tort bar shenanigans.
I am honsetly curious, do any of you, as equity holders, feel better about your equities today with SarbOx than without it, especially given the added expense every company has had to take on? It would be interesting to test the market's perceived value of SarbOx by allowing shareholders to vote to opt in or out of SarbOx. Not only would their voting be interesting, but, if they opt out, it would be interesting to see if the stock price goes down (meaning SarbOx has perceived value) or up (meaning SarbOx is mostly perceived as extra regulatory expense).
A Trade Deficit is Not a Debt (Nor is it Bad)
Well, the US trade deficit is up again, and you can be sure the news was accompanied by a lot of moaning and groaning and soul-searching. The main reason that all the media and the majority of Americans freak out over large trade deficit numbers is that they look at the American economy as a large bank vault with a fixed supply of money on the shelves. They reason that if more money is going out of the vault to buy things than is going back in from sales, then eventually the vault will go empty and we will be bankrupt. Either implicitly or explicitly, those who fear trade deficits perceive the trade imbalance to be red ink, something bleeding out of a fixed supply.
This view of the trade deficit as a being a growing and unsustainable debt is wrong. I will try to explain in a couple of ways.
The micro view
Lets first look at it from the perspective on one individual. Lets say Fred made $50,000 this year, and lives in a US where, before he makes his spending decisions, trade is exactly in balance with China. Fred spends some of his income on rent, and invests some in some nice US equities. And he takes $1000 of what he just made that he might have saved and buys himself a nice Chinese-made plasma TV so he can really enjoy the Superbowl next year.
So, where's the debt? One can argue that net savings is lower (perhaps - we haven't gotten yet to where the Chinese are spending their extra US dollars), but Fred seems to have increased the trade deficit without incurring any debt. In fact, Fred is actually better off, since in a free society no one engages in a transaction that doesn't return more value than one spends. In this case, the plasma TV provides more than $1000 of value back to Fred, or else he would not have engaged in the transaction.
Yes, many people are buying Chinese TV's with consumer debt, but these same people are buying much more American stuff with consumer debt as well. To the extent that there is or is not a "problem" with people taking on too much consumer debt, this problem is absolutely unrelated to the country of origin of the goods they are buying. You can max out your Visa card on American stuff just as easily as on Chinese stuff.
But wait, you say. The reason the debt is not obvious is from the way I structured the problem. I assumed the rest of the economy was static while Fred was making his decision. But if Fred had bought American, somewhere in the US economy there must have been less debt. So we will tackle this next.
The Economy is Not Zero Sum
Repeat please: The economy is not zero-sum. Never has it been so hard to convince people of a concept that should be so obvious. I used up bushels of electrons explaining why the economy is not zero sum here, but the short proof is easy: Look at the world in 1900. Look at it today. The world as a whole and most every individual is far richer. The fact is that economies create wealth every day, and free economies create a LOT of wealth.
At the heart of every argument that the trade deficit is bad is the mercantilist notion that the US economy is a bank vault leaking funds. But this analogy that seems to be in everyone's head is flawed. The supply of money or wealth in the US, in the vault, is constantly growing. If you really have to think of it as a vault, then think of what's inside as rabbits rather than gold bars. Does anyone doubt that if you start with a hundred rabbits and every year sent a few to China that you might still have more rabbits than you started with in the vault? A free economy is like a group of rabbits on Viagra. Even if the Chinese took billions of dollars they got from selling goods to the US each year and burned the money in a big bonfire, the US still would be growing in wealth.
Of course, the vault analogy sucks for a larger reason, that the US economy is deeply integrated with that of the rest of the world. In fact, much of the wealth creation comes from this very integration, providing a more robust division of labor and a deeper well of creativity and entrepreneurship than any one country could achieve on its own. And the dollars we send overseas don't stay there, they come back. But we will address this next.
So What do the Chinese do with Those Dollars?
OK, so we are all short-sitedly (at least according the the "progressive" intelligentsia) sending dollars to China to satisfy our consumerism. So what do those Chinese do with those dollars? They can't spend them domestically, because stores and vendors in China don't accept dollars any more than the Wal-mart down the street from me accepts Yuan.
Most all the dollars have to come back to the US, or the person in China holding them gets no value. You could say, well that person can take them to the bank and exchange them for Yuan, and that is true. But that bank would not accept the dollars for exchange unless it knew it could get them back to the US, or had another client that needed them to make a purchase in the US. So, the dollars will have to come back to the US to purchase something.
Some of the dollars come back to purchase US goods and raw materials, but of course this is less than the total dollars the Chinese have to spend, or else there would be no trade deficit. In fact, this all that the words "trade deficit" really means. It means that of the dollars the Chinese receive from sales to the US, only a portion is used to buy American goods that are shipped back to China. The rest goes to buy American .. something else.
Well, some of it goes to purchase American goods that stay in the US. Lets shamelessly steal an analogy from Don Beadreaux and Jack Wenders. If Chinese companies buy American steel and lumber and ship it to China, it shows up in the trade balance. If they buy the same products and build a factory in the US, it does not. The Chinese use a lot of their dollars to invest in buildings, real estate, capital assets, factories, production facilities, etc. in the US. And this is bad, how? I know that since the Japanese investment boom of the eighties, there are lots of folks who call themselves "liberal" who suddenly got very upset about foreigners owning US-based assets. It is impossible for me to see this concern as anything but xenophobia and racism, since hundreds of years of Dutch, Canadian, and British investment never worried a soul but Japanese and Chinese investment has everyone in a lather.
By the way, if you worry about China as a security threat, wouldn't you rather see them invested in the US economy, and therefore have a strong interest in our continued prosperity? One could easily wonder why Saudi Arabia does not use their power over oil reserves to screw with the US like they tried to do in the early 70's. The reason is that all of their wealth is invested in dollar and euro-denomitated assets. People worry about the power the Saudis may have to mess with our economy, but their reinvestment of dollars back in our economy has made this a game of mutual assured destruction. The same thing is occuring with China.
The other thing the Chinese do with the money is invest in dollar-denominated financial assets, which in many ways is just an indirect way of investing in the same capital assets listed above. They will invest dollars in equities and, yes, debt securities. But the fact that the Chinese choose to spend their dollars on debt securities does not mean that the trade deficit is causing the debt. If the Chinese had a predilection for debt securities, more so than say an American holder of dollars, one might argue that this predilection drives down interest rates a bit and therefore might increase total debt, but this is a fairly tenuous chain of causation and not, I think, what seems to be bothering folks who panic over the trade deficit. In fact, one can argue that the causation runs more strongly the other direction, that the large US budget deficit keeps the dollar higher than it might otherwise be, increasing the trade deficit.
So when people lament that "we now consume much more than we produce", they are making a meaningless statement because the we in the first part are not the same as the we in the second part. The US and the Chinese are sending equal amounts of money back and forth - its has to be, over the medium to long term, or exchange rates would crash. All the trade deficit means is that there is a difference in WHERE Chinese and Americans consume the goods. Americans consume Chinese goods in the US. The Chinese consume some of the US goods it buys in China, and then consumes the rest in the US. The trade deficit represents the net amount of American goods and services the Chinese buy in the US and choose not to haul back to China. Instead, they take ownership of the American goods here, in the form of capital assets or financial securities that represent ownership or calls on the cash flow of these capital assets.
Anyway, you can find more here at Cafe Hayek.
Postscript: By the way, the US has run a trade deficit of a magnitude that panics people for over two decades. If this is bad, surely we would be able to find the damage somewhere. But the US over the last two decades has had the strongest economy in the world. I suspect that a lot of people would answer "we have run up a huge debt". But any increase in total debt in the US is not relevant to the trade deficit, or only tangentially related as discussed above. The Federal debt is run up because the politicians are all spending whores who support their reelection with "good works" paid for with our money. Consumer debt, which may or may not be "too high", is based on individual spending and saving choices, and is unaffected by whether a person buys an American or Chinese TV.
Carnival of the Capitalists 12/19/2005
Welcome to the Carnival of the Capitalists and my second time hosting the COTC. Note that several people tried to submit multiple posts - when that happened, I picked just one to include this week.
Many thanks to Silflay Hraka for starting the Carnival of the Vanities, of which this is a spin-off, to showcase smaller blogs to a wider readership. Look for future Carnivals of the Capitalists at these sites (you can submit articles here):
December 26, 2005 Multiple Mentality
January 2, 2006 Chocolate and Gold Coins
January 9, 2006 The Social Customer Manifesto
January 16, 2006 Wordlab
January 23, 2006 Patent Baristas
January 30, 2006 PHOSITA
While you're here, feel free to look around -- this post will tell you more about what I do at Coyote Blog.
In what has now become a tradition of my hosting the COTC, and, in true capitalist fashion, I have taken on a sponsor for this week's Carnival:
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Government Spending and Regulation
Here at Coyote Blog, I have been warning for years that government-funded health care is a Trojan horse for more regulation of your personal life. I hate it when I am right.
Porkopolis, a blog highlighting the insanities of pork barrel spending, offers an out-of-the-box alternative to rebuilding New Orleans at government expense.
BardsEyeView takes a look at the Federal Budget through the lens of Shakespeare. Really.
Joshua Sharf at A View from a Height looks at government price and supply regulation of taxis, and wonders what's the point.
Jeff Cornwall at the Entrepreneurial Mind gives us the happy news that 2006 will bring us more IRS audits and more people paying the AMT.
Multiple Mentality asks why a man in Atlanta was handcuffed and arrested for selling his own property.
Blogging and the Internet
Kicking over My Traces observes that robot blogs are clogging up Technorati, and that Google blog search does a better job of weeding these out
Wayne Hurlbert of Blog Business World is, not surprisingly given his blog's name, bullish on professional blogging and business blogs.
Similarly, ProHipHop is bullish on the business of podcasting.
Barry Welford brings us a fable to illustrate that InternetLand or cyberspace can be as complex and confusing to executives as Wonderland was to Alice
The China Stock Blog has the 12 hottest search term keywords in China. Not sure the Coyote is doing well on any of these...
Gaurav Agarwal's Blog observes that while computers have penetrated the developed world, mobile phones have been much more popular in the develop ping world.
Marketing and Growth
Elisa Camahort in Worker Bees Blog reinforces the idea, via two customer service tales, that a bad customer experience can last a lifetime.
Fire Someone Today goes after the difference between "small business owner" and "entrepreneur", and posits that every self-described small business owner who is not focused on growth is probably a hobbyist, a slave, or an impending failure
Jim Logan advises aiming customer communications at the customers, not at grammatical nitpickers.
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Jane's Fit by Five enjoys getting her first "press" credential and reviews the Fortune Innovation Forum
Anita Campbell at Small Business Trends is doing her annual trends series, and spoke by phone with noted futurist Watts Wacker who gave his forecast of trends we can expect to see in 2006, along with a bit of advice about how to interpret and use trends.
Starling David Hunter investigates the success of the $15 apple in Japan, and draws some broader conclusions about the nature of business opportunity.
Barry Ritholtz observes in the Big Picture that the film industry has been much savvier in responding to market and technology changes than has the music industry.
My Money Blog deconstructs Ameriprise Financial and finds their hiring criteria and training seem to support his concerns about the company (Lots of interesting comments to the post as well with further information)
All Things Financial has a positive review of Lee Eisenburg's book "The Number", which discusses the dollar figure you need to have set aside to retire the way you want to retire.
Free Money Finance lists 10 questions you should be asking about your retirement
Why Homeschool discusses the importance of early economics training for your kids, and some approaches for teaching them outside of the classroom.
Searchlight Crusade responds to privacy concerns over real estate and mortgage forms, and explains why you have few alternatives to providing your information if you want to close the deal.
Jim at Blueprint for Financial Prosperity describes how he saved $200 on a car repair by ordering parts himself, but still letting the mechanic do the work.
David Porter advises you to make sure you understand your ARM in the light of recent interest rate increases.
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Wall Street & Investing
Retired at 30 announces the brand-new Carnival of Investing, which seems like a pretty good idea given how many investing and personal finance posts the CotC is attracting.
George at Fat Pitch Financials discusses the phases associated with publicly traded corporations going private to avoid Sarbanes-Oxley regulations.
The Internet Stock Blog analyzes what impact the new Google music search function may have on other search and music sales-related stocks.
Mike Price discusses his value-investing strategy
The Japan Stock Blog brings news that the XBOX 360 is not selling well in Japan, for reasons that may be bad news for Microsoft.
Triple Pundit reports that institutional investors are beginning to press insurance companies over their risks/exposure to global warming.
Michael Cale of Financial Methods argues that based on current inflation and interest rates, investors should allocate more assets to bonds and gold and fewer assets to equities.
Triple Witching Friday has camera-phone pictures of the floor melee that ensued from MIzuho's $335 million trading error, potentially one of the most expensive typos in history.
Patri Friedman of Catallarchy argues that index funds using the S&P 500 are not true index funds as the composition of the index is actively managed by humans
Having just exercised some employee stock options, Early Riser explores potential investments for his money.
Financial Options has a summary of economic indicators for release next week, with commentary.
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Economic & Business Theory
James Hamilton in Econbrowser takes another stab at bringing sanity to the gas price "gouging" meme.
The Prudent Investor discusses a seismic shift in power in global financial markets from west to east. "When a conflict-torn dwarf nation like Serbia can sell debt maturing in 20 years with a coupon of 3.75% while the USA has to pay 4.50% for the same maturity it is high time to throw the old dogmas of investing overboard."
Sophistpundit looks at the effect of tradition on journalism and the evolution of successful media companies.
The Common Room draws from a book written in the 1870s where 'Aunt Sophronia' advices her nieces on economic principles.
Thinking about Peter Drucker leads David Foster of Photon Courier to some conclusions about what is wrong with today's business schools.
Health Care and Malpractice
Good News! InsureBlog reports that it may be getting easier for cancer survivors to get life and health insurance.
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David Daniels in Business and Technology Reinvention argues that companies' use of forced stack ranking of employees is out of date.
Ed at Daily Dose of Optimism observes that when a Japanese business struggles, its execs often get a pay cut. He wonders why this logical practice is much rarer in the US.
Jack Yoest writes that corporations don't seem to be showing their traditional hesitation at firing employees before Christmas.
Joe Kristan tells us a tax fraud story and draws the moral: Don't cheat on your taxes and then piss off the CFO who is helping you do it.
200Motels engages the Three Stooges to explain why Enron is pushing up daisies.
The Coyote Within (hmmm, coyotes and business blogs) provides us a business fable about finding out your true character.
Humor and Other
Wordlab looks at politically correct alternatives to "Christmas"
Noah Kagan advises the occasional reversal of holiday gift-giving.
Gill Blog has a picture of the portable inflatable meeting room
Thanks, its been fun. Gotta go...
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Note to Typepad Users
I am sure all us Typepad users enjoyed the downtime and temporary rollback on Friday. I encourage you to check the permalinks for individual posts made in the last 5 days or so. I found clicking on a number of them gave me errors. I fixed this by going into the editing screen and opening each of these old posts and just hitting save. This seems to republish the page and now there are no errors.
Gerbil Fell Off Its Treadmill
Because of your support, it looks like Coyote Blog captured the bronze in our weight class in the 2005 Weblog Awards. Unfortunately, Typepad is celebrating in its own way by bringing the site down for over
an hour 20 hours now. Apparently the gerbil that powers the server fell off his treadmill, and they are trying to find a replacement. No ETA for a fix so far, but if you are reading this I guess it is over.
Update: Well, since I see this post, finally, I guess we are back up. I have always been nothing but happy with Typepad so I will give them a pass this time. But I had such good intentions of getting started on my Carnival of the Capitalists post early, and now I am back to doing it over the weekend.
Congrats to the Iraqis
There may not be the same sense of history this time round, but the joy and determination of Iraqi voters emerging from dictatorship is still evident.
Young and old, able-bodied and infirm, they streamed to polls for the third time in 11 months on Thursday, this time to elect a four-year parliament.
While not as novel as the first post-Saddam Hussein election in January, participation was more widespread. Sunni Arabs, who boycotted the earlier poll for an interim assembly, flocked to vote this time, determined not to miss out on power again.
"I'm delighted to be voting for the first time," said 21-year-old driver Jamal Mahmoud in Ramadi, a Sunni Arab city west of Baghdad that has been at the front line of the anti-American insurgency for the past two years.
Welcome 2005 Weblog Awards (Sticky)
Note to readers: This post is sticky through 12/15. There are new posts just below this one!
Welcome! This year we are in the blogs ranked 1000-1750, which to the un-initiated might seem like an also-ran category until you understand that last year we were in the "ranked 8751+" category, so this is a real step up! Anyway, if you are a regular reader, you can vote once a day here. For those new to the site, here is some of what I do here:
Economics: The myth of Zero-sum Economics; 60 second refutation of socialism; Business Relocation and the Prisoners Dilemma; Technocrats, government and disasters; Roosevelt's NRA: America's Flirtation with Fascism; Gasoline Supply and Demand; Hoping for Price Gouging; Peak Oil; In Praise of Robber Barons
Libertarian political commentary: Respecting individual decision-making, The real implications of a Privacy Right, Technocrats get their comeuppance, A defense of Open Immigration, New Alien and Sedition laws, Opposing Special Rights for the Press, Iraq war, The Kelo decision, Free speech, Danger of Politics without Philosophy
Sports: The Baseball Closer Role is Nuts
There are several things I want to write on, but I am hosting the Carnival of the Capitalists on Monday and so am a bit stretched keeping up with those submissions. If you would like to submit a post to the Carnival, you can do so here (though why I volunteered for the Capitalists instead of the Carnival of the Sexy Lingerie is a mystery to me).
And, by the way, thanks for your support of Coyote Blog in the 2005 Weblog Awards.
Unfunded Public Retirement Benefits
The NY Times has a fairly scary (though not particularly surprising) article about unfunded retirement obligations of government bodies.
Thousands of government bodies, including states, cities, towns, school districts and water authorities, are in for the same kind of shock in the next year or so. For years, governments have been promising generous medical benefits to millions of schoolteachers, firefighters and other employees when they retire, yet experts say that virtually none of these governments have kept track of the mounting price tag. The usual practice is to budget for health care a year at a time, and to leave the rest for the future.
Off the government balance sheets - out of sight and out of mind - those obligations have been ballooning as health care costs have spiraled and as the baby-boom generation has approached retirement. And now the accounting rulemaker for the public sector, the Governmental Accounting Standards Board, says it is time for every government to do what Duluth has done: to come to grips with the total value of its promises, and to report it to their taxpayers and bondholders.
Its not too surprising to most of us that the government, which is actively putting Enron managers in jail for hiding liabilities off-balance-sheet, turns out to be a far worse offender at the same practice. The few agencies that have performed the actuarial calculation are coming up with staggering numbers:
Stephen T. McElhaney, an actuary and principal at Mercer Human Resources, a benefits consulting firm that advises states and local governments, estimated that the national total could be $1 trillion. "This is a huge liability," said Jan Lazar, an independent benefits consultant in Lansing, Mich. "If anybody understands it, they'll freak out."...
Maryland, for example, now spends about $311 million annually on retiree health premiums. But when that state calculated the value of the retirement benefits it has promised to current employees, the total was $20.4 billion. And the yearly cost will jump to $1.9 billion under the new rule, according to an analysis for the state by actuaries at Aon Consulting, which advises companies on benefits.
I usually severely discount consultant scare numbers like "$1 trillion", particularly after the year 2000 bug orgy of doomsaying, but if Maryland, an average size state, is facing $20 billion, then a trillion may only account for state governments. The number may well be higher when you include cities, counties, school districts, etc.
While this is clearly bad news, there is also a silver lining. Politicians for years have given away richer and richer public employee retirement benefits because they appeared "free" (free to a politician being anything that doesn't have to be paid for when he/she is in office). By changing accounting standards to force acknowledgment of this liability, politicos will at least have to address true costs of any future giveaways.
As a minimum, most public authorities are looking to change benefits for new employees, which is an entirely reasonable response that should have been taken years ago. Just as past changes in public accounting for pensions caused agencies to shift benefits to 401K's from defined benefit pensions, so this rule-changes in retiree medical care will certainly change benefits packages.
However, that being said, I have a much bigger problem with several state's proposals to retroactively reduce benefits for existing retirees and employees. These retirement benefits are a contract, and should not be allowed to be changed casually, any more than could an agency just choose to renege on a municipal bond payment. Sure, the commitments may have been irresponsible, but that does not make them automatically void. Private companies from time to time get themselves in a similar mess, and the only way for them to relieve themselves of some of this liability is through the bankruptcy process. Public agencies should be forced to do the same. They should not be able to use their coercive legislative power to just make these obligations disappear at the stroke of a pen -- they need to go through the pain of a bankruptcy, where all creditors, not just pensioners selectively, will need to share in the haircut.
Government Funded Vacation
I run a recreation business that tends to be seasonal. Many of the campgrounds we run are at high altitudes, and are closed most of the winter because they are snowed in. We tend to open them in the spring and close them in fall, meaning we hire people in April or May and their job ends in September or October. Everyone we hire knows from the time they get their job offer that the job is just seasonal, and they will not have a job past some date.
This arrangement is fine with most of my workers, since they tend to be semi-retired already and work during the summer and take winter off.
The only state where we have a problem is California. In California, we have an incredibly large number of employees who register for and get unemployment benefits over the winter, even when they have no intention of working. Most states require that unemployment seekers be actively looking for work. I don't know if California checks less or if California employees are more adept at gaming the system, but the state unemployment system there seems to be paying for a lot of my employees' vacations. I know of several who are getting unemployment and are not even in the country - they are down in Mexico fishing all winter.
As a result, I am in the worst California unemployment category, cleverly labeled "F+". In New Mexico I pay .03%, in Florida I pay 1.3%. In California, I pay a whopping 6.2% of wages into the system. Which leads me to another thought - even if no one was cheating the system, why should I be punished with the worst rating in the state? The nature of my business is that I can only offer jobs April to September. The only alternative is not full-time work, but no job at all. The unemployment system was created for the GM guy who has worked the line for years and gets laid off when the economy goes bad. But my employees know from the moment I offer the job that they are not going to have a job in November. Unlike the guy at GM, they get exactly what was promised to them. If this was unacceptable, if they needed full time work, they should have sought out another job. Why am I punished with higher taxes because I only have seasonal work to give? Why, when I only have seasonal work, do I have to fund full-time income?
Give credit where it is due, California has done a pretty good job over the last couple of years cleaning up its workers comp. system. I would like to see them do something similar with unemployment.
Support Coyote Blog!
Thanks for all the votes to date in the 2005 Weblog Awards. We are hanging in there at third, which would be a cool place to finish. Don't hesitate to vote for us every 24 hours at this link. And you can then vote from your kids' computer. And when you are in the public library you can vote from that computer. And there is nothing wrong with wandering down the row of empty cubicles at work during lunch and voting form all those computers....
Update on the Health Care Trojan Horse
On several occasions, I have warned that government funded health care is becoming a Trojan horse for increasing government micro-management of your life. The logic is that by paying for your health care, the government can argue it has a financial interest in your not eating fatty foods, not smoking, wearing a bike helmet, exercising, etc, decisions that would otherwise only affect the individual themself.*
For those who often accuse me of exaggerated paranoia when it comes to government intervention, check out this from the UK:
People who are grossly overweight, who smoke heavily or drink excessively could be denied surgery or drugs following a decision by a Government agency yesterday. The National Institute for Health and Clinical Excellence (Nice) which advises on the clinical and cost effectiveness of treatments for the NHS, said that in some cases the "self-inflicted" nature of an illness should be taken into account.
Sorry, but I told you so. What's next? Is an unwanted pregnancy "self-inflicted"? How about an STD from unprotected sex? The rulers of this process in England might argue that "Oh, we would never include those things" but technocrats in the US have seen parallel things happen as they have lost political control of their similar institutions in the US.
It gets me to wondering whether the Solomon Amendment may be the new template for government control of individual lives. In both Universities and state governments, the Feds use the threat of withdrawal of federal funds to coerce actions (think 55 mile speed limit, title IX, military recruiting on campus) that the Constitution nominally does not see to give them authority over. Now, there is the distinct possibility that federal funds to individuals (Social Security, Medicare, unemployment) could be used to increase federal authority and coercive micro-management at the individual level.
*Update: Yes, I do know that "themself" is probably not correct grammar. I sometimes use they, them, themself as a grammatically frowned-upon but I think less awkward substitute for he/she, his/her, and his-or-herself when trying to be gender-neutral. Sometimes I just use the traditional male pronoun, sometimes I use the female pronoun generically since women will complain about "he" used generically but men will not complain about "she", and sometimes I mix them up. There is still some consensus building to do in coming up with gender neutral pronouns, though this person defends the singular "they".
More than 5% of the net's most popular domains have been registered using "patently false" data, research shows.
A US congressional report into who owns .com, .net and .org domains found that many owners were hiding their true identity.
Congress has just discovered that people, knock me over with a feather, do not always include all their correct personal private and personal confidential information in online web databases that can be read by everyone:
The report found that owner data for 5.14% of the domains it looked at was clearly fake as it used phone numbers such as (999) 999-9999; listed nonsense addresses such as "asdasdasd" or used invalid zip codes such as "XXXXX".
In a further 3.65% of domain owner records data was missing or incomplete in one or more fields.
I personally am a fan of (555) 555-5555 in filling out web forms. For years, I never, ever put my correct phone number in the WHOIS registry, and only correctly filled in enough blanks to get my credit card authorized.
As is usual with every privacy reduction effort, it starts with an honest desire for better law enforcement:
Increasingly whois data is being used by law enforcement and security companies to find out who is running a website involved in spamming or some other scam....
The GAO recommended that more effort be made to verify the information by domain owners and that greater use be made of commercial software tools to check who runs a website.
I get the law enforcement issue, but I think it is dwarfed by the privacy and free speech issues. There are a lot of really good non-illegal reasons not to want the detailed personal and private information of web site owners plastered all over public data bases, and there are particularly good reasons that web site owners might not like the government to know who they are. Like every blogger in China, for example. I don't think that US Government bodies (or major corporations, or political groups, or fringe groups like the KKK) are above seeking some type of retribution (e.g. audits) against folks online who criticize them, and I am sure China and Saudi Arabia are not above it. If you start a web site criticizing your current employer, do you really want to reveal your name? I for one thought for a long time about whether to blog as myself or anonymously.
As for hunting down phishing and other such scams, liscencing web owners in a way similar to say gun owners is not necesary. Scams are illegal because somewhat is defrauded of money, and that money leaves an easier trail to follow than any electronic trail, even with better ICAHN data. You can use zombie computers and other techniques to defeat most electronic tracing, but the money WILL end up in the bad guys hands and can be found.
Next up: Requiring background checks before you can register for a web site.
A Proposal to Improve the Race
Yesterday an Institute of Medicine committee released a report on food marketing and children that called for congressional action "if voluntary efforts by industry fail to successfully shift the emphasis of television advertising during children's programming away from high-calorie, low-nutrient products to healthier fare." According to The New York Times, the IOM report "links TV ads and childhood obesity." According to The Washington Post, it says "TV ads entice kids to overeat."
It is amazing that the human race has made it this far given that our children are raised by two entities, "TV" and "Congress", who are so often bickering with each other over how to best accomplish the task.
I have a proposal. I think we should nominate some smaller group of adults, maybe two on average, to take over the care, feeding, and education of children until they reach adulthood. Though its probably not an absolute requirement, maybe we could have one of these adults be a female and one a male, to make sure children can draw on the experience and insights of both genders. These individual child protective guardians could actually live with the children, helping them to avoid making bad decisions about diet, entertainment, and many other life issues. This would drive accountability for raising children down much closer to the individual level, and relieve from "TV" and "Congress" the need to micromanage decision-making from afar.
Am I Going to Jail?
House Judiciary Committee Chairman F. James Sensenbrenner (R-Wis.), who never saw a criminal penalty that couldn't be improved by making it harsher, has introduced a bill that would impose a three-year mandatory minimum sentence on anyone who, with an expectation of financial gain, "assists, encourages, directs, or induces" two or more foreigners to illegally reside in the U.S. The penalty rises to five years if the encouragement leads to a crime punishable by more than a year in prison. Families Against Mandatory Minimums notes that "the five-year mandatory minimum will nearly always apply because the bill would also increase the maximum penalty for illegal entry to a year and a day and provides mandatory minimum penalties of one to 10 years for those who reenter the country following deportation." Sensenbrenner's committee is scheduled to vote on the bill today, without any hearings.
So if I accept paid advertising on my blog, and then I publish this, am I a felon?
Your Cable Bill Is Going Up (and Your Choice is Going Down)
The FCC has reversed course and decided that cable companies bundling channels into packages rather than selling them a la carte is bad and requires coercive action from the government to fix. This issue was originally pushed by religious groups, who I guess did not want signals from naughty content even accessible from their house (the "just don't watch that channel" solution presumably determined to be too difficult). However, "progressives" on the left have latched onto this issue as well. I remember a Kevin Drum post, which unfortunately I can find right now, advocating cable unbundling as an example of an agenda progressives should be jumping on. Beyond the basic rationale that progressives hate cable companies almost as much as Exxon and Wal-mart so anything cable companies oppose they are for, the ostensible logic is that if I pay $50 now for 165 channels, I should only pay $10 if I choose to watch only 33 of those. Here is their "logic":
The main obstacle for a la carte: programming contracts. Programmers routinely bar cable operators from selling channels a la carte.
Why? Advertising rates. Cable programmers base ad rates on the number of viewers they reach. The more they reach, the more they can charge. If they allowed a la carte, viewership for many channels would likely plummet.
Gene Kimmelman of Consumers Union says:"This is the essence of how they squeeze extra revenues out of consumers."
The problem could worsen, he warns, as cable operators — as well as broadcasters and satellite TV — pack on more channels.
"The bundles get bigger, and prices go up," Kimmelman says. "A la carte would blow this scam out of the water."
This presumes that the number of channels has anything to do with cable cost or pricing. Which it really doesn't, since the marginal 100 channels or so at the tail end of the viewership curve all just want to be carried for free, in hopes they can get some ad revenue from corporate America for being on the dial. From a cost standpoint, beyond a few core channels, it costs cable companies about nothing extra, given the infrastructure of high-bandwidth delivery systems is already in place, to send you 20 channels or 150.
Pricing, though, is not just set based on costs, but on value. And the government is about to change the value equation, and maybe not in the consumer's failure. Up to now, cable's value proposition has been "wide selection", a value proposition supported by the multi-channel bundle for one price. After making this traditional value proposition illegal, there is no guarantee at all that the value proposition that replaces it will be a better, or even equivalent one.
Most consumer advocates tend to assume that bundles are hosing the customer, because they are being forced to pay for stuff they don't want. But bundles can more often than not be the opposite - including items of value that the customer is not paying full price for. The the evolution of cable service tends to confirm this. Cable on a real basis does not cost that much more than it did 20 years ago when you only got 20 or so channels. My suspicion, which I can't prove, is that you are paying for those 20-25 core channels, and everything else is a freebie. In this model, bundling is delivering extra value over a la carte, because you really aren't paying much or anything at all for those incremental 130 channels.
In fact, in my years as a consultant looking at pricing, one of the first things we looked at in a company to increase total pricing and profits was unbundling services. The issue of concern was that more often than not, bundling provided customers with hidden pools of value that they were not really paying for, and unbundling helped make consumers pay full price for things they were previously getting for free. Airlines, banks, and numerous others make more money by unbundling today. My suspicion is that this will be the case with cable.
By the way, look under the hood of any business regulation proposed as "consumer protection" and you will usually find the fingerprints of corporations trying to use the government to sit on their competition. And yes, we have that here. New entrants AT&T and Verizon want the government to ban the current cable companies' business model, thereby putting them on equal footing in entering the market. By the way, speaking of these phone companies, does anyone out there really think they are getting a better deal when they pay for call waiting and answering service and long distance and local separately rather than in one of the advertised bundles?
So here are my predictions:
- Assume an average cable bill today is $50 a month for 150 channels. If the average person watches and really is willing to pay for 15 of those a la carte, then the new pricing is going to result in a $50 bill for those 15 channels. Count on it. People will be paying the same amount as before, but for fewer channels. Or, if they want the same number of channels as before, they will be paying more
- In one year, leftish backers of the bill will realize the above, and will publicly criticize the cable companies for their rational reaction to the coercive government program. They will propose new pricing regulations to "fix" the problem they say stems from private enterprise, but in fact came from unintended consequences of the original regulation. This use of negative consequences of regulation to justify further regulation is one of the most important tools in the statist's bag.
- A number of smaller cable channels will go bust. Even those wanting and willing to pay a la carte for the full 150 channels they got before will not be able to, because many will not exist any more.
- Fewer niche or idiosyncratic channels will exist. Today, cable companies want to sell the package of 150 channels. At the margin, adding a channel that caters to a niche not reached by the other channels is better for them than adding yet another channel that caters to the median viewer, because it makes the package as a whole attractive to more viewers. However, if every channel is sold a la carte, cable programmers will add channels and content aimed at the mass market to maximize sales of each channel. Each channel must stand on its own. Oddball niches need not apply. Interestingly, many of these will be things like the Gay Vegan Channel that tend to be particularly popular among "progressives".
- Innovation in terms of new cable channel offerings will die, because a la carte pricing will substantially increase the cost for a new entrant to get going. In the past, they just had to sell 2-3 cable company programming buyers that they should try the new channel in their lineup, and they were off and running. Now, they not only have to convince cable companies to be on the menu, but have to sell consumers one by one to get into homes. This is orders of magnitude more expensive. The stock of current cable companies will go up, because competition will be harder. In another ironic unintended consequence for "progressives", only large corporations will be able to start new cable channels in the future, increasing media consolidation that progressives decry.
- In one year, religious backers of the bill will be upset that so many people still opt for naughty content, and will propose legislation to increase the difficulty in signing up for certain channels (e.g. physical presentation of proof of age) and to regulate advertisement and promotion of these channels.
Postscript: In the past, FCC and Congressional rules have actually mandated bundling. For example, still on the books are must-carry laws that say that cable companies have to carry every local broadcast channel. It will be interesting to see if I can opt out of ABC. I bet I won't be able to - legislation pre-empts FCC rule-making. Which will create an interesting discriminatory aspect to the regulation, which is that the cable companies must bundle in companies that also broadcast their content over airwaves but must unbundle non-broadcast content. Which also leads to the irony that cable will have to include content that consumers have an alternative source for (e.g. ABC via an antenna) but have to be ready to exclude content that consumers have no alternative source for (e.g. the History Channel).
Final Thought: What's next from the FCC? If I only listen to FM 93.3 on my radio, are radio makers going to be required to unbundle the capability to receive all those other stations to give me a radio that only gets 93.3? And does anyone think that radio would be cheaper?
Streaming Music, Plus A Blogger Vanity Toy
I wanted to stream digital music from my main computer in my home office to my main stereo system in the den. After some research, I chose version 3 of Squeezebox from Slim Devices. They have taken an open architecture approach that I like, and have a proven history of steadily improving their product. Most true audiophiles I sought advice from use this device (this is an audio-only device, no video or jpegs streamed). I am currently converting my entire CD collection to lossless FLAC format audio files using EAC, which seems to be the audiophile favorite for ripping (and it is free). FLAC compression seems to result in albums 250-450 meg, meaning my 400 CD's will need about 140 gig, which I have available. I will ditch most of my mp3 files, saving only a subset for iPod rotation. New mpg files, or whatever rules in the future, can be made directly from the FLAC.
The box itself is small and well-designed. Setup was a breeze, once I fixed a setting on my firewall. Now I can point my remote at this box and scroll easily through my music collection (along with a number of Internet radio stations). No flipping through CD's or yelling at the kids for not alphabetizing them right. You can browse or search by title, artist, or album.
In addition to controlling it with a remote, I can control it with any computer on the network. Right now, I choose songs on a laptop in the kitchen, which sends music from the computer in the office to the amp and speakers in the den. Awesome. Their web site says that you can also browse your music and choose what's playing from a web enabled PDA, but I have not tried it yet.
Here is the blogger vanity part: In addition to an array of other screensavers, you can have the device connect to any online RSS feed and scroll the contents marquee-style across the screen. All day I have had my blog feed scrolling across the device, interspersed with NY Times and ESPN headlines.
Technocrats and GM
Frequent readers of this blog know that I have a particular disdain for technocrats and the damage they do via government coercion. Just to make sure that I am not subject to the Princess Bride accusation of "You keep using that word -- I do not think it means what you think it does", I will define my terms.
In my parlance, a technocrat is someone who believes that individuals, either acting alone or in groups, are making the wrong decisions and that a few very smart people can make things better for everyone by overriding everyone else's decision-making.
Technocrats sometimes have a "macro" flavor, focusing on the broad sweep of the economy, seeing market failures everywhere that they feel they could override if only someone would follow their "plan". This hubris was of course one of the foundations for that juggernaut Soviet Russian economy, and was in fact the thinking behind America's closest brush with fascism, Roosevelt's NRA, which was modeled on Mussolini's economic work. My college roommate Brink Lindsey has a lot of background on the early 20th century roots of technocratic opposition to capitalism in his book Against the Dead Hand: The Uncertain Struggle for Global Capitalism.
Technocrats also can have a "micro" flavor, focusing on individuals who they feel are making bad decisions for their own selves. Classic examples are helmet and seat belt laws, where "smarter" people use government coercion for your own good. We typically call these micro technocrats nannies. I discussed governments overriding individual decision-making here.
Just the other day I mentioned in this post that I had had a conversation with a technocrat who was:
lamenting that allowing a company like GM to die is dumb, and that a little bit of intelligent management would save all those GM jobs and assets. Though we did not discuss specifics, I presume in his model the government would have some role in this new intelligent design (I guess like it had in Amtrak?)
I went on to describe why it was OK to let GM fail. In particular I noted that it was bad for everyone to artificially force quality assets (people and facilities) to remain in an under-performing corporate structure, which is what the government in effect does when it tries to override the market's decision that a corporation needs to die.
I bring this all up because I saw this classic example of technocratic statism from David Ignatius in the Washington Post.
Economist Philip Verleger was traveling in Asia last month when the news broke that General Motors was slashing 30,000 jobs to try to reverse its death spiral. A Japanese economist he had known for many years asked him a stark question: "What great nation will allow its major manufacturing company to fail?"
The convulsions wracking GM are scary, but they're getting surprisingly little attention amid America's sea of other troubles. Certainly, we've heard barely a peep out of the Bush administration, which evidently worries more about keeping energy companies happy than Rust Belt manufacturers. Commentators have blamed GM management for being too shortsighted and its workers for being too greedy. But few people seem to appreciate that the nation as a whole has a stake in maintaining a dynamic industrial base, or that government policies could help reverse our industrial decline....
But suppose we took GM's near-death experience as a national wake-up call and decided to get serious about reviving the long-term health of the U.S. manufacturing sector. What if political leaders treated this as a fundamental national mission, equivalent to President John F. Kennedy's call to put a man on the moon? Could government make any difference?
Try this thought exercise: Suppose a government plan could revitalize the automobile industry and the rest of the transportation sector, encouraging it to leapfrog several generations of technology; suppose this same plan could cut U.S. dependence on foreign oil to zero; and suppose, finally, that the plan could develop new technologies that would bump our economy to a higher growth path and foster U.S. economic leadership in the 21st century. Would that idea be worth exploring?
Yes, good idea, lets hand over the automobile industry to the same folks who built and maintained the levees in New Orleans. It is interesting he quotes a Japanese economist chiding the US for letting its major companies fail. The author is basically advocating the Japanese MITI approach, making technology choices and managing industries and preventing large organizations in which national pride is somehow tied up from failing. Which, of course, has resulted in a 15 year recession in Japan. And Europe. Don Boudreaux at Cafe Hayek responds further:
I’m tempted to do a long riff here on all the details that Ignatius misses – such as, for example, the fact that it’s simply not true that as goes GM so goes America; such as the fact that there is nothing at all special or inherently better about manufacturing and manufacturing jobs over service-sector production; such as the fact that infecting decisions about investment and production with politics will reward political appeal at the expense of genuinely economically sound uses of resources.
But it’s late, so I’ll just point you to Ignatius’s closing paragraph:
I'm no technologist, so I can't evaluate the technical details of Lovins's proposal. What I like is that it's big, bold and visionary. It would shake an America that is sitting on its duff as foreign competitors clobber our industrial giants, and it would send a new message: Get moving, start innovating, turn this ship around before it really hits the rocks.
This paragraph reflects an attitude that is rich soil for totalitarianism to take root. It ignores individual freedom; it ignores the possibility that the admired Big Plan might be flawed, either technologically or economically or both. Ignatius is all orgasmic simply because The Plan is centralized and Big and (allegedly) will compel or inspire the masses once again to behave in ways that promote national greatness.
Heaven help us.
If you think he is exaggerating, as many people do, by invoking the threat of fascism, go back and read what the fascists of the 1930's were writing. It is nearly identical to Ignatius's words.
There are two lessons technocrats never learn: 1) Their grand plans never work and 2) The statist machinery they create via their grand plans is always taken over from the well-meaning by the power-hungry and corrupt. As I stated before:
Technocratic idealists ALWAYS lose control of the game. It may feel good at first when the trains start running on time, but the technocrats are soon swept away by the thugs, and the patina of idealism is swept away, and only fascism is left. Interestingly, the technocrats always cry "our only mistake was letting those other guys take control". No, the mistake was accepting the right to use force on another man. Everything after that was inevitable
And, in fact, you are seeing just this today, as technocrats on the left lament that the machinery of state control they created, from the FDA to public schools, is being taken over by their political enemies. Unfortunately, they lament the loss of control, not creating the all-powerful state in the first place. Much more on this topic here and here.
Postscript: I tossed off the statement above about letting the same organization that built the New Orleans levees fix the automobile industry. That quick joke makes a valid point, but I should mention that Ignatious does try to preempt this argument:
But then, who can expect individuals to act responsibly when we have an administration that asserts, in apparent sincerity, that the proper response to our massive deficits is more tax cuts that plunge us even deeper into debt? We've become so inured to public-sector mismanagement that the idea of government solving problems is almost laughable.
In effect, he is arguing that yes, the government has mismanaged things, but this is only because they did not let the really smart people run things. This is a particularly seductive argument for the left, where most technocrats reside, since it lets them say that government is inefficient only because that idiot Bush is in charge.
But this ignores the fact that the stupid and corrupt always take over the machinery of state. Technocrats love railroads, and think America is stupid for not riding the train, like those brilliant Europeans are. Many supposedly smart people, both Democrats and Republicans, have had their shot at Amtrak, and it still sucks and loses money. One reason among many for this failure is that incentives matter. The government has the incentive to patronize powerful voting blocks, not to run an efficient operation or serve customers well. That's why we get half-billion dollar bridges in Alaska to islands with populations of fifty people. That's why scientific decisions at the FDA get politicized. That is why have the government backing a technology ostensibly to reduce fossil fuel use (ethanol) that has been proven to actually increase fossil fuel use. In effect, government always turns smart people stupid. More on the specific dangers of government industry building here.
Another Postscript: By the way, people smarter than me do change industries all the time. The are called "entrepeneurs" and they raise capital from people voluntarily and they succeed or fail only if individuals choose to do business with them. I find it fascinating to compare Sam Walton with Mr. Ignatius. Sam Walton raised money voluntarily to support a different vision of retailing, and was successful because many, many people have chosen voluntarily to shop at his stores. Mr. Ignatius wants to change the automobile industry at the point of a gun, using government's coercive power to force companies to adopt certain technologies and build cars in certain ways, funding the effort with tax dollars taken unwillingly from productive Americans. Isn't it amazing that "progressives" will want to rally around Mr. Ignatius's vision while excoriating Wal-mart at every turn?
OK, another Postscript: At the heart of many of Mr. Ignatius's concerns, and of many people on the left, is that America is "losing" to other countries. Could someone on the planet please provide maybe just one single fact to support what they mean by this. I mean, I hear this all the time, but what is it referring to? Other than, of course, the lamentable fact that 43-year-old Ivy League educated men still can't stop ending sentences with a preposition.
Since 1990, the US economic growth rate has dusted that in most of Europe and Japan. Only developing nations like China have growth rates that outpace us, and I guess that is what these folks are worried about. But this is what is never said: If you don't want countries like China to "catch up" with the US in technology and economy, then you have to be willing to consign billions of people to eternal poverty. It is amazing to me that "progressives" who ostensibly care about the poor get so upset when countries like China develop real capabilities that can finally pull themselves out of poverty. Inevitably, as they do this, they will do some things better than we do. Over time, our economies will shift, as we do the things we are good at and vice versa. I know this is kind of novel for some - its an idea that has only been around for 200 years or so. Having other people get wealthier is only a threat if you believe economics are zero-sum, another urban legend popular on the left that can be demolished with about 5 seconds thought.
One of the virtues of being a bit older is that you can start personally observing history repeating itself. In the late 80's and early 90's everyone was running around screaming that we were "losing" to Japan and we had to imitate their statist technocratic approach. Fortunately we did not. Only in politics could you hear people like Mr. Ignatius being taken seriously when they scream "our economy is losing - lets go out and imitate the people losing even worse"
Update: Sorry this is getting so long, but I can't ignore Virginia Postrel on the same topic of technocrats:
Competition provides not only useful criticism but a continuous source of experiments. It gives people...the ideas with which to create still more progress and encourages them, too, to come up with incremental improvements. By picking winners, stasist protectionism eliminates this learning process, which includes learning what does not work.
"Premature choice," warns the physicist Freeman Dyson, "means betting all your money on one horse before you have found out whether she is lame." Protecting established interests from new challengers is one form of premature choice. But technocratic planners also sometimes kill existing alternatives to force their new ideas to "succeed." To protect the space shuttle, NASA not only blocked competition from private space launch companies, it also eliminated its own expendable launchers. Such pre-emptive verdicts often mark public works projects. Planners pick an all-purpose winner, squeeze out alternatives, and eliminate any real chance of experiment and learning.
Consider the infamous Denver International Airport. Aviation officials touted the $4.9 billion project as essential to keep up with the region's growth. They promised it would be a vast improvement over the old Stapleton Airport, which was often socked in by bad weather. But its sponsors foisted DIA on unwilling customers. The airport is 25 miles outside Denver, pretty much in the middle of nowhere, while Stapleton was just 15 minutes from downtown. To make matters worse, there are no hotels near DIA. And the new airport's cost per passenger is somewhere between $11.75 and $18.14, depending on how you count--substantially more than either the $4.59 at Stapleton or the $9.91 promised by former Mayor Federico Pena. Frequent travelers resent the inconvenience and the generally higher ticket prices. "I liked Stapleton better," one told The Denver Post. "You could literally leave about 45 minutes before your plane departed. With DIA, you have to leave an hour and a half before." A flight attendant expressed a common sentiment: "It's a beautiful airport. But we hate it."
On the airport's first anniversary, journalists had trouble reaching a simple verdict on DIA. There were complaints all right--lots of them. But some passengers liked the spiffy new airport, with its marble floors and inviting shops. And flight delays had in fact dropped dramatically. The first-anniversary stories were confused, lacking a central theme.
The reporters had missed the main problem: The city had eliminated the most obvious source of feedback--competition from the old airport. It had made DIA a protected monopoly rather than an experiment subject to competitive trial. By shutting down Stapleton, DIA's political sponsors had made it impossible to rule the new airport a definite error. No matter how many complaints passengers lodge, officials can always point to other advantages. At the same time, however, DIA's monopoly keeps it from becoming an accepted success. Without a genuine trial, we simply have no way to tell whether travelers (or airlines) would rather trade a convenient location for fewer weather-related delays. One airport must fit all: Love it or hate it, if you're flying from Denver you don't have a choice.
Technocrats often decry competition as wasteful, and always use examples of failed companies and poor private technology choices (e.g. dot com bust companies) as an example of inefficiency of a competitive marketplace that technocrats could avoid. As Postrel points out, though, these individual failures are not failures of the system, but rather are triumphs. In the immortal words of the Microsoft tech center, they are a feature, not a bug, and a critical feature at that.
Gas Prices, Minimum Wage, Wal-mart
Some days, I just don't have the energy to issue yet another rebuttal of serial economic ignorance. But the folks at Cafe Hayek never seem to get tired. You can find thoughtful rebuttals to accusations that Oil prices are too high, Wal-Mart prices are too low, and the minimum wage needs to be raised.
Scott Adams Explains Humor
Its been linked around quite a bit, but if you haven't seen it, Scott Adams, creator of "Dilbert", has a blog. Most of the posts are humorous, but in this post he provides a framework for thinking about humor:
The core of humor is what I call the 2-of-6 rule. In order for something to be funny, you need at least two of the following elements:
Cute (as in kids and animals)
Recognizable (You’ve been there)
I invented this rule, but you can check for yourself that whenever something is funny it follows the rule. And when something isn’t, it doesn’t. One of the reasons comics are such a popular form of humor is that they often get the cute part automatically. Calvin and Hobbes is widely considered the best comic ever, but the few times it featured the parents doing the main action, it fell flat. Whenever it combined Calvin and Hobbes (both exceedingly cute), with some witty dialog (clever), a dangerous wagon ride (cruel), Calvin acting like a typical kid (recognizable), and thinking about adult philosophy (bizarre) it fired on 5-of-6 humor elements, which is virtually unheard of.
I spent WAY too much time in business school and as a consultant deconstructing businesses and industries into processes and frameworks. It is interesting to see something we geeks think of as unstructured and creative (e.g. humor) deconstructed scientifically as well.
Back from Hawaii
Well, I am nursing some jet-lag but am working on a post for later this week on the alleged CIA secret overseas prisons. This is one of those issues where my pragmatic frequent-flying persona is all over Jenifer Garner violating the crap out of terrorist civil rights to protect me, but my intellectual-libertarian persona knows better. If you want a preview of where I am going with this, you can see this post on immigration, noting the argument that our individual rights pre-date, rather than flow from, the government, and therefore citizenship shouldn't matter in assessing what rights a person has vis-a-vis Uncle Sam.
I had the opportunity to look at some land while I was in Hawaii, thinking about maybe having a retirement home in the future, at least to escape the Phoenix summers. My wife and I would like to be on a coast. I don't like the Northeast, and neither of us like the Gulf coast or Northwest coast. That leaves SoCal and Hawaii (if you limit it to the US). What worries us is that though we expect some appreciation in our real earnings over the next decade, we fear that waterfront property in these areas may appreciate even faster, leading us to the conclusion that we may be able to afford a nicer piece of land now than when we retire. We worry about bubble pricing but being willing to hold an asset for 20-30 years alleviates some of that problem. The Big Island seems to be a better value than the other islands, but even there, its freaking expensive. Sigh. Maybe if it was a big enough lake, that would do?
Race-Based Tenant Restrictions
I am on the Big Island of Hawaii today doing some business (yes, I know, lets hear all those violins). I encountered a program here called Hawaiian Home Lands. Apparently the state makes long-term leases of land for homes available at $1 a year to native Hawaiians. Recipients of this largess may either get a lot with an existing home, or just an undeveloped lot they can build on (using special subsidized loans and with a number of special exemptions from building and development codes). People may pass on the lease and the improvements they have built to their kids as long as their kids qualify for the program as well.
On its face, this appears to be one of those well-meaning government programs designed to deal with a problem that many resort destinations face, that locals who work in the resort communities often get priced out of the market for homes in the area where they work (Vail is the classic example of this problem). Unfortunately, as with many government programs, this program has some perverse results.
Qualifying for the program requires that the recipient pass a strict racial test, which the HHL web site says is "50% or greater native Hawaiian blood". Setting eligibility for a government program based on racial tests is pretty outlandish in and of itself, but it gets worse. People taking advantage of the program need to think carefully about the race of their mate before they decide how much to invest in their home. A 75% Hawaiian who marries a full-blooded Hawaiian will be able to pass the improvements on to their children (since the children will be more than 50% Hawaiian), and thus can justify a large home investment. The same person who marries a full-blooded Japanese or African or Anglo-Saxon will not be able to pass their home on to their kids, since their kids will fail the race test. So, not only is there a race-test for a government program, but the government is providing strong financial incentives not to "dilute" a certain race. Hawaii über alles.
By the way, those who don't think that passing assets to one's kids is an important part of long-term investment thinking should compare the houses built by program participants who know their kids cannot inherit to those built by those who will be able to pass the investment to their kids -- there is no comparison. This would make a very fertile ground for an economics graduate student trying to quantify the value people assign to the of passing assets to one's kids in long-range investment planning.
Congress Has Totally Lost It
Anyone who is still trying valiantly to take our Congress seriously can stop now:
Rep. Joe Barton, R-Ennis, chairman of the Subcommittee on Commerce, Trade and Consumer Protection, will conduct a hearing next week about the BCS....
When asked to explain the timing of the hearings, a spokesman for Barton referred to BCS history. Before this season, four of the seven BCS years have resulted in championship game controversy.
"The BCS system was created to identify a broadly accepted national champion, but 57 percent of the time it has failed to do so," Barton said in the news release. "Most coaches who lose 57 percent of their games would also lose their jobs. Yet that's what we settle for in determining a champion today."
Wow, it must be the 30th Amendment: Congress shall make no law abridging the right of Division 1 college football fans to have a clear national champion. I wonder if this is just a ploy to get free Rose Bowl tickets?
Everyone in Congress. Go home. Now. Don't come back.
Why Its OK if GM Dies
I had a conversation the other day with a person I can best describe as a well-meaning technocrat. Though I am not sure he would put it this baldly, he tends to support a government by smart people imposing superior solutions on the sub-optimizing masses. He was lamenting that allowing a company like GM to die is dumb, and that a little bit of intelligent management would save all those GM jobs and assets. Though we did not discuss specifics, I presume in his model the government would have some role in this new intelligent design (I guess like it had in Amtrak?)
There are lots of sophisticated academic models for the corporation. I have even studied a few. Here is my simple one:
A corporation has physical plant (like factories) and workers of various skill levels who have productive potential. These physical and human assets are overlaid with what we generally shortcut as "management" but which includes not just the actual humans currently managing the company but the organization approach, the culture, the management processes, its systems, the traditions, its contracts, its unions, the intellectual property, etc. etc. In fact, by calling all this summed together "management", we falsely create the impression that it can easily be changed out, by firing the overpaid bums and getting new smarter guys. This is not the case - Just ask Ross Perot. You could fire the top 20 guys at GM and replace them all with the consensus all-brilliant team and I still am not sure they could fix it.
All these management factors, from the managers themselves to process to history to culture could better be called the corporate DNA*. And DNA is very hard to change. Walmart may be freaking brilliant at what they do, but demand that they change tomorrow to an upscale retailer marketing fashion products to teenage girls, and I don't think they would ever get there. Its just too much change in the DNA. Yeah, you could hire some ex Merry-go-round** executives, but you still have a culture aimed at big box low prices, a logistics system and infrastructure aimed at doing same, absolutely no history or knowledge of fashion, etc. etc. I would bet you any amount of money I could get to the GAP faster starting from scratch than starting from Walmart. For example, many folks (like me) greatly prefer Target over Walmart because Target is a slightly nicer, more relaxing place to shop. And even this small difference may ultimately confound Walmart. Even this very incremental need to add some aesthetics to their experience may overtax their DNA.
Corporate DNA acts as a value multiplier. The best corporate DNA has a multiplier greater than one, meaning that it increases the value of the people and physical assets in the corporation. When I was at a company called Emerson Electric (an industrial conglomerate, not the consumer electronics guys) they were famous in the business world for having a corporate DNA that added value to certain types of industrial companies through cost reduction and intelligent investment. Emerson's management, though, was always aware of the limits of their DNA, and paid careful attention to where their DNA would have a multiplier effect and where it would not. Every company that has ever grown rapidly has had a DNA that provided a multiplier greater than one... for a while.
But things change. Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet. DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you. When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one. The corporation is killing the value of its assets. Smart people are made stupid by a bad organization and systems and culture. In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.
Changing your DNA is tough. It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years. One could argue that GE did this, avoiding becoming an old-industry dinosaur. GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough. GM's DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do. If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.
So what if GM dies? Letting the GM's of the world die is one of the best possible things we can do for our economy and the wealth of our nation. Assuming GM's DNA has a less than one multiplier, then releasing GM's assets from GM's control actually increases value. Talented engineers, after some admittedly painful personal dislocation, find jobs designing things people want and value. Their output has more value, which in the long run helps everyone, including themselves.
The alternative to not letting GM die is, well, Europe (and Japan). A LOT of Europe's productive assets are locked up in a few very large corporations with close ties to the state which are not allowed to fail, which are subsidized, protected from competition, etc. In conjunction with European laws that limit labor mobility, protecting corporate dinosaurs has locked all of Europe's most productive human and physical assets into organizations with DNA multipliers less than one.
I don't know if GM will fail (but a lot of other people have opinions) but if it does, I am confident that the end result will be positive for America.
* Those who accuse me of being more influenced by Neal Stephenson's Snow Crash than Harvard Business School may be correct.
** Gratuitous reference aimed at forty-somethings who used to hang out at the mall. In my town, Merry-go-round was the place teenage girls went if they wanted to dress like, uh, teenage girls. I am pretty sure the store went bust a while back.