Month: October 2009

The New York Times ran an article today on the $787 billion federal stimulus program, which has created or saved 640,239 jobs. If the spending continues at roughly the current rate, it looks as though each job “created” has cost future federal taxpayers $1 million. In a country with 15 million unemployed, will saving 640,000 jobs cut the hard times short? Maybe. Let’s look deeper.

According to the article, most of the jobs “created” have in fact been those of unionized public employees, such as school teachers. Due to union contracts, states cannot cut workers’ pay, so when they run short of funds they must lay off workers. The same union agreements usually stipulate that the youngest workers be cut first and those workers are the cheapest so massive numbers of them have to go before significant cost savings are realized. By spending federal money, Michigan was able to retain 22,514 teachers that it could not have afforded on its local tax base.

Suppose that you’re a business trying to decide where to invest in a new facility. You’ll pick a place with the lowest costs and most stable environment. How does Michigan look? Counting the underemployed and discouraged, perhaps 25 percent of the citizens are jobless. Yet the teachers are the 4th highest paid in the nation (source). The situation is clearly not sustainable. Greenwich, Connecticut can have highly paid teachers indefinitely, but Flint, Michigan cannot. Our potential investor knows that eventually this federal money will be exhausted and Michigan will have to fall back on whatever taxes it can collect locally. Will there be new property taxes on factories? A local corporate profits tax? Additional payroll taxes? Crushing property taxes on residential real estate? Crushing income taxes on workers? Once these taxes are imposed, will citizens flee the area, leaving the remaining residents with even larger per capita obligations? Who knows? And why take that kind of risk when it is possible to build the facility in a state whose expenses are in line with the locals’ wealth?

The stimulus money is apparently not being used to invest in infrastructure that can be used by the future generations who will be paying for it. It is being used to delay restructuring by states whose payroll and pension expenses cannot be sustained via local taxation. The overhang creates fear among private investors. Fear causes them to hold back, thus prolonging the recession, as noted in The Forgotten Man, a history of the Great Depression.

Does that make sense?

[And if you don’t believe this argument, there is no shortage of investment opportunity in the Great State of Michigan!]

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Folks: Every time Microsoft comes out with a new operating system I get excited to see what kind of features it has for managing a photo library. I don’t like the idea of using third-party photo library management and database tools because photo collections should last for at least one human working lifetime (90 years, assuming a photographer starts at age 10?) and software other than operating systems tends not to last very long.

Windows Vista was originally supposed to include a relational database management system behind the file system, which would have enabled the storage of captions and powerful querying for specific photos. I was disappointed when the product shipped. The file system was plain old NTFS (admittedly much more reliable than the standard Unix file system, but no different than on Windows XP). There was no support for camera RAW. Looking at a folder of JPEG-format photos in Explorer, the operating system would show thumbnails and other information; if the consumer selected RAW, on the other hand, he or she got a completely different and inferior experience on the computer. No thumbnails or other information about the photos were visible from the operating system. One had to install and use an application program such as Google Picasa in order to view camera RAWs.

I visited a friend last night who was brave enough to install Windows 7 on one of his old PCs. He is quite happy with the product, rating it much better than Vista. However, when I asked him to show me a folder including a mix of Nikon RAW files and JPEGs, the .NEF files were displayed without a thumbnail preview. Was his installation complete? Is there any hope for camera RAW in Windows 7?

[If the answer is “you need to install some other application program”, why then would I want to pay for Windows 7? Presumably the Google Chrome OS (free) will run my favorite browser (Chrome) and a good tool for managing RAW files, Picasa (free). Who is the target market for Windows 7? Just big companies that want to run Office, Exchange, and Microsoft-specific networking and collaboration tools?]

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All of the Ivy League schools have proven remarkable for their inability to innovate, sitting idly with more than $100 billion in capital while startups such as University of Phoenix revolutionized American higher ed. Yale University in particular supplied some excellent material for “Universities and Economic Growth”, with a professor from one of their most popular courses spending a full 22.5 minutes of a lecture giving tuition-paying students the street address of a bookstore that had gone out of business some years earlier, reeling off the names of important people he knows, and discussing the content of courses other than the one being taught. But the $50,000 per year well has not run dry. This New York Times story reveals that Yale administrators were unable to answer correctly when asked whether or not a particular person had received a Ph.D. from the university. Perhaps it was the commonness of her name, “Shin Jeong-ah” …

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Old people have never been as quick or energetic as young people, but societies have often valued them for their accumulated skills, knowledge, and wisdom. The ancient Egyptians considered a person to be truly old at age 80, though Ramesses the Great lived to perhaps 90 or 91 and Pepi II may have lived to 98. In a continuous culture that spanned 3000 years it would be quite reasonable to ask someone born 80 years earlier about best practices in art, agriculture, architecture, construction, or military technology.

What has the increasing pace of technological development done to old people in our age?

Let’s start by considering factual knowledge. An old person will know more than a young person, but can any person, young or old, know as much as Google and Wikipedia? Why would a young person ask an elder the answer to a fact question that can be solved authoritatively in 10 seconds with a Web search?

How about skills? Want help orienting a rooftop television aerial? Changing the vacuum tubes in your TV? Dialing up AOL? Using MS-DOS? Changing the ribbon on an IBM Selectric (height of 1961 technology)? Tuning up a car that lacks electronic engine controls? Doing your taxes without considering the Alternative Minimum Tax and the tens of thousands of pages of rules that have been added since our senior citizen was starting his career? Didn’t think so.

The same technological progress that enables our society to keep an ever-larger percentage of old folks’ bodies going has simultaneously reduced the value of the minds within those bodies. It is sad to contemplate. Perhaps the answer is for every old person to become an expert personal computer and network administrator. Those skills always seem to be in demand by the general public.

Another answer would be to develop obvious wisdom. Unfortunately, the young people who are most in need of an elder’s wisdom are the least likely to realize it. Only a small percentage of old people throughout history have managed to maintain high status and value purely through wisdom. Examples that come to mind include the Buddha (died at 80) and Confucius (died at 72). Their would-be modern counterparts are most likely forwarding cautionary emails to younger relatives about the dangers of opening particularly virulent email messages.

I recently wished a friend a happy birthday. He is in his 50s with a young wife and two-year-old children. All his life he has been valued for and earned his living with musical creativity. Here’s his reply:

I have been declared inept by my household! It only gets worse. You are not judged by your intelligence but by how well you do menial tasks. I have been spiritually castrated. I am a walking corpse. The only freedom is when I write.

Good ideas for maintaining relevance and value in old age would be welcome in the comments section.

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Journalists and investors breathed a big sigh of relief today, as GDP numbers showed a growing economy (example). As noted in an earlier posting, an economic statistic that includes government spending is not necessarily indicative of sustainable growth. The data available from bea.gov (click on “NIPA tables”) show that in constant 2005 dollars, government spending has reliably expanded from $2.1T per year in 2000 to a rate of $2.6T in Q3 2009. How about private investment? It was $2T in 2000. Last quarter, it was $1.5T, down from a peak of about $2.25T in 2006. Despite an expanding U.S. population and workforce, private investment is much lower than it was a decade ago.

One problem with the private investment statistic is that it includes things that are essentially unproductive, such as the real estate bubble. A new house, once finished, does not generate jobs for workers in the same way as a factory expansion. Fortunately, the BEA breaks out “equipment and software”. This excludes commercial real estate and concentrates on machines used by business. Such investment was $0.9T in 2000, peaked at $1.1T in 2007 and has fallen back to a rate of $0.88T per year in recent months.

What happens with a fixed level of private investment and a growing population and workforce? If the effectiveness of the investment is held constant, you’d expect either (1) workers to become less productive and receive lower hourly wages, or (2) existing workers to remain equally productive and receive the same wages, but new/young workers to be unemployed (or some combination of the two).

Could we paint a rosier scenario with the same numbers? Sure. We can say that investment has become more cost-effective. In the expensive old days a small company would need to buy a copy of Microsoft Office for every employee and purchase Exchange to run email. Now they can use Google Docs and Gmail. In the expensive old days a company would need to buy new tools when it changed a product design; now the tools are numerically controlled and can be reprogrammed cheaply (this is a problematic argument because CNC dates back to the 1950s). We’ll be able to grow because we are investing smarter, not harder. A potentially stronger argument is that we’ve moved beyond manufacturing. We’ll let the Chinese and Germans build solar energy systems while we concentrate on services. A service business requires much less capital investment than a manufacturing business.

A year ago I wrote my economic recovery plan, saying that the key to recovery for the U.S. would be creating an environment favorable to business investment. The global crisis is over and companies are investing, but they are mostly investing in other countries (example from NYT: “India Finds Itself Awash in Foreign Investment”). Whatever it is that we’ve done is getting a thumbs-down vote from business executives who decide where to create private jobs.

It sort of makes sense when you think about all of the weight that an investment in the U.S. has to carry. In the last year alone, we’ve added some substantial new obligations. A company will have to pay not only for its own workers but, through taxes, also for the pensions and health care of retired 48-year-old GM and Chrysler workers. A U.S. employer will have to pay the world’s highest prices for health care for its workers, just as in mid-2008, but also will have pay for health insurance for Americans who don’t work or who work for other companies. An investor in the U.S. will find his returns reduced by whatever additional and ongoing amounts the government decides to hand out to Wall Street banks (the handouts started just over a year ago). An investor in the U.S. will have to pay for a factory, as in 2008, but also gold-plated pork barrel “stimulus” spending.

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I had dinner with some flying buddies this evening. I mentioned that some readers of this weblog had taken offense at my referring to Barack Obama as “King Obama”, though for eight years I had called our president “King Bush II” without anyone becoming upset. Was it fair to call Obama a king?

My argument was that recent American presidents are like kings in that their experience of life bears no relationship to that of a commoner. A current president of the U.S.

• never waits in line
• never waits in traffic (or drives a car! or gets a car inspected or renews a car registration or renews a driver’s license)
• never waits for a doctor (he has one or more available inside the White House at all times)
• never interacts with a health insurance administrator
• never waits to catch someone’s attention
• need not carry a wallet
• is always served his favorite foods
• does not go through the $50 billion TSA security system at airports
• has an entire 400-seat Boeing 747 for his personal plane
• upon reaching his destination, finds that three helicopters and multiple land vehicles have been flown in ahead of time for his use (when Obama visited England, instead of borrowing Blackhawks from the British military, the U.S. taxpayer paid to have additional cargo planes full of helicopters flown across the Atlantic)
• never has to cook any food, clean any surface, or organize anything in the house
• has a spouse who doesn’t have to do any domestic chores (thanks to the First Lady’s staff of more than 20 assistants)
• never encounters an unemployed neighbor (because he lives in recession-proof Washington, D.C. and in any case does not walk around the neighborhood too much)
• sees only people who are dressed in their best clothing (e.g., at $6000 per person fundraisers)
• when traveling, sees towns that have been scrubbed and polished to the point that they should be considered Potemkin villages
• need not do sysadmin on any home PCs
• need not sort out phone bills or any other bills for that matter
• need never change a lightbulb, call or wait for a Bosch dishwasher repairman
• need never do any yardwork
• does not send his children to public schools (where 90 percent of American children are warehoused)
• need not worry whether his children will be accepted into an elite private school
• never leaves the house without being surrounded by armed guards
• need not worry about future employment or retirement, if only because of the speaking fees available to former presidents

Was it always like this? I’m just finishing No Ordinary Time: Franklin and Eleanor Roosevelt: The Home Front in World War II. Eleanor Roosevelt, who traveled extensive around the country and abroad, “refused Secret Service protection, believing that their presence made her look more like a queen flanked by an imperial guard” (book). Because the number of servants and staff required by the Roosevelts was so much less than the number employed by the Obamas (Eleanor may have had just one social secretary), the White House had a lot of empty rooms that they let friends, family, and associates use. Some guests camped out for months or years, a familiar experience to average Americans who live in a big house during tough times.

From 1956 through 1960, President Eisenhower took shorter trips in an Aero Commander, an efficient six-seat airplane with two piston engines (source). The 60,000 gallons of fuel that the current Air Force One burns on a trip to England and back would power the Aero Commander for approximately 2000 hours.

It isn’t any actions carried out by King Bush II or King Obama that make it fair to refer to them as kings, it is the fact that they share so few day-to-day experiences with their average subject.

Was this argument convincing? “I had a breakfast meeting in Bermuda recently,” replied a business guy, “and the Prime Minister of the U.K. happened to be vacationing there at the same time. He was sitting at the next table. No security detail. No special service. No special menu. I don’t think it makes sense to call Obama ‘King’. I think ‘Messiah’ is a more accurate term.”

[Note that nowhere in this posting or in earlier postings have I suggested that we dispense with the American monarchy. I have not advocated that we would be better off being governed by one of our peers. I simply believe that the lifestyle of the president has changed so much since Eisenhower that we need a new title for the position.]

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… by reading this New York Times article about some non-profit employees in New York City. Because non-profit Form 990 filings with the IRS are public, the salaries of the five highest paid workers become available at Web sites such as guidestar.org. The union guys who roll pianos around on the stages of Lincoln Center will earn an average of $290,000 this year. Their counterparts at Carnegie Hall earn between $330,000 and $420,000 per year according to the article (the actual Form 990 for 2006 shows, on Statement 18, that the five highest paid stagehands at Carnegie earned these amounts plus an additional $75,000 to $107,000 in contributions to benefit programs; i.e., the total compensation for one guy was $535,000 per year).

Comparison: Average medical doctor in Manhattan earns $192,000 per year (source).

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At a recent birthday party, while my cake blazed like the wreck of the Hindenburg, I was gifted with a great book: The Map as Art: Contemporary Artists Explore Cartography (Thank you, Suzanne!). A related Web feature is available at http://www.womansday.com/Articles/Family-Lifestyle/10-Amazing-U.S.-Map-Artworks.html (the top Aaron Foster piece is behind the counter at the Smithsonian Museum of American Art gift shop, next time you’re in Washington, D.C.).

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… because nobody can see past 2010. That was my argument at lunch today with a friend who is founder and CEO of a local tech company that peaked at about 200 employees. I noted that most economic forecasts said that things here in the U.S. are going to be slow through 2010 but then pick up in 2011. They have some data that has lead them to conclude that things will remain slow for the next year or so, but no data at all for 2011. Nobody has a crystal ball so nobody can see further than about a year. Why then do they believe that there will be a recovery in 2011? Because they think that the default state of the U.S. economy is growth. As I noted in a January 2009 posting about England, it is possible for an economy to slide sideways for decades (Argentina provides another example).

What did this guy who has created 200 jobs have to say about the theory?

“Most businesses right now are sized under the assumption that there will be a recovery pretty soon. If the economy does not grow, they will have to make a lot more cuts. I don’t see anything on the horizon that would indicate a recovery.”

He is not planning to invest or hire anyone for his firm.

Anyone else have a tale of private hiring or investment to offer? A firm not in government or healthcare doing some hiring? (or not) If so, please tell us about it in the comments.

[Why was I lunching with a business guy? A friend had noticed a posting for a $9/hour part-time job with this company and asked for help in securing it. When I pulled out my friend’s resume during lunch, the CEO said “We’re hiring?”]

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Some of my airline crew friends would refer to a plastic shopping bag containing their sandwich as a “West Virginia lunch pail”. When folks asked how we navigated while flying a helicopter from California to Boston I would say that we used a “Kentucky GPS”, i.e., descending to 250′ above the ground and reading the green signs on the Interstate. In that spirit, let me say that I emailed my “Crash of 2008 Concierge Physician” (doctor friend) about whether I should be concerned about entering Day 15 of swine flu symptoms. I’ve still got a sore throat and cough. His response:

“I see something similar to asthma on frequent basis after a viral upper airway disease which gives a bit of wheezing and cough for several weeks- can be treated with steroids if symptoms are bad. Will stop on its own eventually (all bleeding stops eventually as well due to clotting or death).”

Now I feel better.

[Separately, a friend’s 5-year-old had been trained to protect himself from flu germs the modern way, with hand sanitizer. Unfortunately the bottle was located on a counter higher than his head. When he pressed on the pump some of the alcohol-based fluid squirted in his eye. Now he has an ulcerated cornea, which is extremely painful but usually heals well. He’s now relegated to the dark basement, watching TV in a Roman Polanski outfit (dark sunglasses, baseball cap).]

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