Month: December 2008

Now that the Detroit automakers are being nationalized we’re debating who is going to administer them on behalf of the taxpayers. What government functionaries have experience in this area?

Let’s look at G.M.:

• product that isn’t competitive internationally
• union labor force
• costly pension and health care obligations
• management promoted and rewarded despite decades of failure

What does that sound like? Any one of thousands of America’s public school systems. If we were to rename “General Motors” to “Michigan Vocational Public School #103 for Lifelong Learners” it could be administered by existing public school superintendents. Given that the state of Michigan’s population is shrinking there are probably some well-qualified superintendents soon to become jobless.

Once we rename G.M. into a public school it won’t bother us that it can’t compete with Honda, Hyundai, and Toyota, just as it doesn’t, apparently, bother us that our public school systems aren’t competitive (we complain about it, but we never make substantive changes).

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Just back from seeing the movie Milk. It turns out that Harvey Milk, while building his political base in San Francisco, ran a camera shop in the Castro. Some early scenes feature a class Nikon rangefinder camera and many scenes have the formerly ubiquitous retail film cube shelves as a background.

The movie may provide some career inspiration to today’s youth. With the U.S. entering a prolonged period of economic decline, a career in politics should be much lower risk than a career in business. In fact, the best time to enter politics is when the economy is collapsing. Voters are more likely to look for fresh faces when the country is going down the tubes. A modern-day Milk would have to get onto the city payroll more expeditiously than the 8 years that it took Harvey Milk. Anyone starting a retail store today would probably go bankrupt within a year or two…

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Remember back in the 1980s when we were all afraid of being eclipsed by Japan? They started out with a higher average IQ. They added a superior education, work ethic, and devotion to craftsmanship. Nippon’s best and brightest went into engineering and product design while ours went into law and financial chicanery.

We thought our world domination was coming to an end in 1989 when the Japanese bought Rockefeller Center. How could we compete with a country where everyone was good at his or her job? Where the crime rate was negligible and therefore expenses for security, police, and prisons were minimal? Then the Japanese economy stumbled and we relaxed. Apparently fat dumb and happy was a fine recipe for economic growth.

As I unboxed a Canon 5D Mark II today, it occurred to me that perhaps our 1980s Japanophobia was justified. It just took longer for the U.S. to fade than we thought it would. The Japanese unemployment rate is less than 4 percent right now and they probably don’t play around with the statistics as much as we do, excluding “discouraged” workers (our rate is 12.5 percent when measured semi-honestly (source)).

What did those Canon engineers manage to accomplish with the 5D Mark II? The camera costs $2700, less than its predecessor did when introduced almost four years ago. The old camera was the best low-light tool on the market for most of its life; the new one has useful performance at ISO 25,000. Resolution is up from 13 megapixels to 21, comparable to the most expensive professional Canon body. The battery lasts longer, the motor drive is faster, the weather sealing is better, the viewfinder is more accurate (98 percent coverage). A lot of extra software goes into making the best possible JPEGs, with more attention to capturing scenes with high dynamic range, face recognition for autofocus, and a database of optical performance for all of the Canon lenses so that light fall-off in the corners is automatically corrected.

In the department of “just because we can”, the engineers threw in the capability of capturing 1080p HDTV video. My friends who work with professional studio equipment say that the Canon 5D Mark II produces quality comparable to $50,000 TV station cameras.

I reflected on the 15 or so Canon bodies that I’ve purchased since 1994. All performed flawlessly from the time that they were removed from the box until they were given away. All of the people to whom I’ve given Canon bodies are still using them with no problems. These are machines with motors, springs, electronics, etc. that are subject to vibration, impact, dust, water, and the other hazards of modern life.

Let’s be honest with ourselves and ask if there is an American company that could produce anything competitive to the Canon 5D. Keep in mind that Canon makes the CMOS sensor in its own fab. Canon writes the software itself. Canon designs and makes the lenses. An American company is lucky if it can handle a challenge in one domain; everything else needs to be contracted out.

What about Japan? How deep is their technological prowess? If they didn’t have Canon they’d have to supply us with cameras from Nikon, Olympus, Pentax, and Sony.

[Where can you get a 5D Mark II? amazon.com is sold out. This one came from Adorama.]

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Companies that go through a Chapter 11 backruptcy reorganization tend to shed jobs, close factories, and discontinue product lines. Airlines do this on a periodic basis and it doesn’t seem to upset anyone. The managers of the Detroit automakers claim that somehow a Chapter 11 bankruptcy reorganization by them would be disastrous for the U.S. We wouldn’t be able to survive if they were to shed jobs, close factories, and discontinue unprofitable product lines. We need to give them billions of dollars of taxpayer funds.

What do they propose to do if they get these billions of dollars? Shed jobs, close factories, and discontinue product lines.

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We Americans never worried about our public school system too much because we had a lot of good colleges. Whatever Johnny didn’t learn while his brain was on Hold for 12 years he could learn during 4 years at State U. This New York Times article has an interesting graph, however, that shows that ever fewer Americans will be able to afford college. Unless there is a big boom in free online educational resources, most of us are doomed to being as dumb as we were on the day that we left high school.

I wish that a source were cited for one quote in the article: “Already, we’re one of the few countries where 25- to 34-year-olds are less educated than older workers.” Can this be true if measured by credentials? It seems that one can’t spit in the street without hitting someone with a master’s degree of some sort.

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I had lunch today with a friend who runs a software company here in the Boston suburbs. “We like to hire people fresh out of undergraduate Computer Science programs,” he said. “This year we are getting them for 20 percent less than a year ago and they are pleasantly surprised that we are hiring at all.”

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A Mad as Hell and not Going to Take it Anymore letter from a banker that explains how credit card limits are set… from the nytimes

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Here’s a New York Times article about electric car infrastructure for Hawaii. This shows what private enterprise can do when the challenge is moderate. I don’t think that we could rely on an entirely private solution for the entire U.S. because the capital requirements are too large to support the entire Lower 48 simultaneously. This loosely relates to my earlier posting on converting the U.S. to electric cars.

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Jimmy Carter’s most eloquent words were in response to a question about abortion: “There are many things in life that are not fair, that wealthy people can afford and poor people can’t” (typically condensed to “life is unfair”).

Let’s revisit two young MIT graduates. Back in 2005 I found them sharing an apartment. My student was earning $90,000 per year working 80 hours per week on a new videogame. His classmate was selling $750,00 mortgages to people with bad credit, earning $150,000 per year working six hours per day (story). I figured that this couldn’t last forever. A society could not continue bestowing most of its economic rewards on those citizens who contributed the least to sustainable GDP growth. I thought that surely the pendulum would swing back and the engineer would be reaping much more in the way of rewards than the mortgage fee collector.

What’s the story in 2008? The mortgage gig came to an end and our young genius is now in law school, preparing to join his fellow lawyers in reducing GDP. What about our diligent engineer? Laid off when the project ran over budget and got canceled. He’s looking for work.

This got me thinking about globalization. When the infrastructure for globalization was new, nobody was quite sure how the benefits and costs would be distributed in American society. The container ship, the jet airliner, and the Internet introduced only subtle changes at first and then any costs were softened by a global economy that was mostly booming from the early 1980s through 2007.

As the U.S. economy collapses and people stand in unemployment lines it is easier to see who got hit the hardest by globalization.

Consider the domestic autoworker. His counterparts in Mexico are happy with a wage of $1.50 per hour. The more money that the U.S. government gives his employer, the more rapidly it builds new factories in Mexico and China. The container ship brings in inexpensive products from China, but once our autoworker gets laid off he can’t afford to buy too much. Food is a big portion of a laid-off worker’s budget, but we have decided that food will be one of the few things that we won’t let foreigners compete in supplying to American consumers, so the price of food in Michigan remains much higher than on the world market. What about housing? That’s also a big expense for a newly unemployed person. Construction labor and materials have become much more expensive because of increased demand from the countries that grew as a result of globalization.

Consider the public school teacher. If she has been in her job for a few years (2 in California) she has earned tenure and can’t be fired. If she holds onto her chair for 10 or 20 years she’ll be earning $70,000 per year in many systems. She cannot lose her job if she is less effective than a teacher in China or South Korea who earns far less. She benefits from being able to buy a 2010 Ford Fiesta built in Mexico by workers earning $1.50 per hour.

Consider the medical doctor. More than half of her income comes from programs guaranteed by the U.S. government, e.g., Medicare and Medicaid. As long as the U.S. has old people or poor people, she will always have work. Her professional association prevents the licensing of new medical schools that would increase competition among doctors for jobs. Thanks to the reduction in manufacturing costs from globalization, she can afford to purchase a brand new flat-screen TV every day for the rest of her life and give it away after watching one program.

The broad trend seems to be growth in government jobs, growth in health care (essentially a government job because more than half of all health care dollars are spent by the government), and shrinkage in private industry jobs. Another 10 or 20 years of this and 100 percent of employed Americans will work for the government or the health care industry.

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