Month: August 2010

I flew JetBlue back from Puerto Rico today. Just as at Logan Airport on Monday, the line to check a bag or check in with a human were epic and would not have been out of place in Lagos or Nairobi. A passenger with carry-on baggage might have gotten away without waiting too long except that half of the automated check-in kiosks were out of service. JetBlue says that they are implementing some new software. In the meantime, I would heartily suggest JetBlue customers plan carry-on baggage only and print boarding passes at home. Don’t ask friends to meet you at the scheduled arrival time; the flight to San Juan left an hour late and the flight back to Boston was late as well.

Once on the plane I asked the flight attendants if they were going to brief us on the use of the emergency slide. Apparently I was not the first to come up with this joke. All three of the flight attendants had worked with Steven Slater, who was finally released from jail on Tuesday evening, and described him as a great worker and “way more tolerant than we are”. How about the slide exit? “That’s been my dream for years,” one said.

[How was Puerto Rico? I stayed in a charming family-run hotel called the “Hilton” and ate authentic local cuisine at Morton’s and Chili’s. It was somewhat challenging being plunged into an exotic foreign culture in this manner, but I believe that it broadened my perspective. Adapting to life back on the mainland was difficult; dinner this evening included some broccoli and the presence of anything green on the plate was unfamiliar.]

Full post, including comments

One of the great things about Puerto Rico is that you get to do business at the Caribe Hilton’s swim-up bar. This is the hotel where the pina colada drink was invented, supposedly, back in 1954. My companion is a true man’s man, who was probably using a chainsaw and a backhoe as soon as he escaped from his Snap-On crib. Let’s call him “Aaron”. I ordered a pina colada. “What’s in that?” he asked. I explained the pineapple juice, rum, and coconut cream concept. Had he never had one? Indeed no. He ordered his own, took three sips and set it aside.

Full post, including comments

I enjoyed a JetBlue flight Boston to Puerto Rico yesterday, saving approximately one week compared to my last trip down here (see “flying the Caribbean”). While we were in the air, Steven Slater quit his flight attendant job with the airline and made a dramatic exit from JFK (boring nytimes story; lurid NY Post story), activating the Embraer E190’s emergency slide as part of his escape from two decades of dealing with the general public. The flight was over. The plane was at the gate. Slater did not interfere with any other airline employees trying to do their jobs. Slater did not cause anyone to be injured or suffer a financial loss (unlike half of the employees on Wall Street!). Yet the guy is now in jail and charged with a criminal offense (nytimes).

I can’t figure out the rationale for criminal charges. Perhaps Slater owes JetBlue the cost of repacking the slide (though they probably also owe him a paycheck and could deduct the cost from that). Aside from the fact that the incident occurred at an airport, where is the crime?

[Update: I was talking about this with some friends at dinner last night and comparisons to Mark Hurd of Hewlett-Packard came up. Hurd was the CEO and accused of stealing the shareholders’ funds via false expense reports. Instead of the police coming to his door and arresting Hurd for stealing, he was sent an additional $28 million of the shareholders’ money (more).]

Full post, including comments

In one of the most thought-provoking economics books of our times, A Farewell to Alms, Gregory Clark, discusses the concern that improved machines would reduce demand for labor. The answer during the Industrial Revolution was remarkably “no”. Most unskilled workers in fact benefited hugely from the Industrial Revolution, but not all:

“there was a type of employee at the beginning of the Industrial Revolution whose job and livelihood largely vanished in the early twentieth century. This was the horse. The population of working horses actually peaked in England long after the Industrial Revolution, in 1901, when 3.25 million were at work. Though they had been replaced by rail for long-distance haulage and by steam engines for driving machinery, they still plowed fields, hauled wagons and carriages short distances, pulled boats on the canals, toiled in the pits, and carried armies into battle. But the arrival of the internal combustion engine in the late nineteenth century rapidly displaced these workers, so that by 1924 there were fewer than two million. There was always a wage at which all these horses could have remained employed. But that wage was so low that it did not pay for their feed.” (page 286)

The U.S. has 15 million officially unemployed workers and additional tens of millions who aren’t working and aren’t looking for a job. Could these folks be the draft horses of the 21st century?

The cost of a low-skill worker has increased tremendously in the U.S. Let’s look at four kinds of costs:

• direct payments for wages and payroll taxes
• health insurance
• mistakes
• employment lawsuits

The minimum wage has increased steadily in the U.S. even as the average skill of a high school graduate has fallen. The federal minimum wage was increased in July 24, 2009, 1.5 years into our current economic depression. More important, perhaps, are the heavy increases in payroll taxes over the years, notably for Medicare and Social Security.

Most companies cannot culturally stomach denying health insurance to certain classes of worker. Apparently it is okay to pay the CEO 319X what the average worker gets, but it is not okay to tell low-skill workers “You aren’t important enough for us to buy you health care in the world’s most expensive and least efficient system.”

Most subtly, and perhaps most significantly, the potential cost of a mistake by an individual worker has skyrocketed. In industrial plants, the link between individual employee action and billions in losses is fairly obvious, e.g., with the Bhopal explosion. A tiny misstep in a chip factory and a wafer containing hundreds of valuable integrated circuits becomes worthless scrap. Computer networks, however, have made the potential costs of a clueless or careless office worker dramatically higher. Suppose that a company hires a low-skill not-very-alert office worker for $10/hour. This person accepts an email invitation to follow a hyperlink. One click later and the company’s network is infected with a virus. Best case: IT department spends $50,000 cleaning up; worst case: customer lists, customer credit cards, and other private data are compromised, costing millions of dollars.

As the government has increased the number of ways in which an employee can sue an employer, the expected cost of litigation from each additional employee has gone up. The cost of trying out a worker who might not work out is much higher than formerly, especially if that worker is older, female, or belongs to a government-recognized minority group. It might be smarter to employ fewer higher skill workers because the chance of litigation is lower with 100 workers than with 200 workers.

What’s the practical implication of all this? Policies that encouraged companies to hire the unemployed after the Jimmy Carter “malaise” years may no longer be effective. Health care spending as a percentage of GDP in 1980 was 8.8 percent (source) compared to nearly 20 percent today. Only a handful of companies had Internet access and there were as yet no viruses.

Or we can rephrase the entire posting as “How comfortable would you feel working at your present job alongside someone whom you would rate as among the least competent 25 percent from your high school?”

[Update: An economist sent me this article on how U.S. firms have job openings, but can’t find skilled workers to fill them.]

Full post, including comments

A lot of newspaper articles have the form, “the U.S. has problems but no other country can match our creativity so we will always have an edge” (example).

We may have the world’s highest corporate tax rates, the world’s most expensive and inefficient health care system, the world’s highest paid and least effective schoolteachers, the world’s largest unfunded pension obligations, a centrally planned economy that discourages private business investment, etc., but those drone-like Asians will never catch up to us because we are creative and they aren’t.

“The Creativity Crisis”, a Newsweek article by Po Bronson and Ashley Merryman, questions this received wisdom. Measured by the Torrance test, developed in the 1950s, American creativity peaked in 1990 and has been declining since then.

[A true believer in inherent mid-20th-century American superiority might note that the article does not explore the possibility that average American creativity is declining because we have been admitting so many immigrants from countries that are inherently uncreative (“the importation of dullards theory”).]

Full post, including comments

I just finished Overboard!, a book about a 2005 trip to Bermuda in a 45-foot sailboat. The forecast is for bad weather but upon reaching the Gulf Stream the winds reach near-hurricane levels and rogue waves build to 40′. Being exactly halfway between the U.S. and Bermuda makes rescue very challenging, but the Coast Guard, the Canadian military (flying its own C-130 down), the U.S. Navy (story), and, critically, a private oil tanker, are able to cooperate effectively.

Aviation nerds will appreciate the chronicles of C-130 airplanes conducting searches from 400′ above the waves and spray and Jayhawk helicopters try to hover in winds gusting to 60 knots while winching up survivors.

The author, Michael Tougias, renders the events vividly and, according to the real-world survivors, accurately. This would be a great gift if you want to discourage someone from embarking on a blue-water trip in a small boat.

I would say that this book will be more satisfying in hardcover than as an eBook due to some worthwhile maps and interesting photos. Also, you’ll definitely want to give the book to a friend when you’re done.

I’m glad that I will be going to Puerto Rico on Monday on an Airbus rather than in a ship.

[The only folks who may not like this book are taxpayers; sending nearly a billion dollars worth of government ships and aircraft after a $125,000 sailboat cannot be inexpensive. It did not bother me, however, because the accomplishment was so clearcut compared to the rest of what our military does, e.g., in Iraq and Afghanistan. Also, the events happened back in 2005 when we still thought we were rich!]

Full post, including comments

Kathleen Johnson, who responded to my aviation internship page, graduated today with her helicopter rating: video. She has done tremendous work on a wide variety of projects and is a remarkably capable and hard-working person, but regarding this particular achievement I feel that all credit must go to her primary instructor…

Full post, including comments

In mid-2009, Barack Obama persuaded the U.S. Senate to kill funding for the F-22 Raptor fighter jet, a $65 billion program that will yield 187 planes (nearly $400 million per airplane).

Last Thursday, however, the scorned F-22 came to President Obama’s rescue. Mr. Obama had left his desk in Washington, D.C. to attend a birthday party and some fundraising events in Chicago (see this Bush-era post for how it would be incredible to see a U.S. president stay at his desk and work!). This involved the taxpayers shelling out for a few C-5 cargo planes to fly out to Chicago filled with massive Marine One helicopters and armoured SUVs. Obama himself followed in a private Boeing 747 (estimated hourly cost was $56,800 in 2006). To ensure Mr. Obama’s security, the FAA was instructed to close off approximately 3000 square miles of airspace, thus shutting down flight schools and people attempting to use their airplanes for personal and business transportation.

Apparently oblivious to this temporary flight restriction, a “small biplane” wandered within 30 nautical miles of Obama. The unarmed $30,000 airplane, with a maximum speed of perhaps 100 knots. was met by two supersonic F-22 Raptors (total cost $800 million plus perhaps $50,000 per hour in operating costs (source)). “There was no threat to the president, the military said.”

In the past, planes such as this were met by a single $27 million F-16 or a $14 million Blackhawk helicopter, but apparently the Air Force has decided that the supersonic F-16 is no longer up to the task.

More: AirForceTimes.

[Note that the F-22 is not the most expensive airplane to run; the C-5s that haul the presidential helicopters around supposedly have the highest operating costs of any Air Force weapon (source).]

[The two Democratic fundraisers that Obama attended brought in roughly $3.5 million (source). So it would have been far cheaper for taxpayers if Obama had stayed in Washington and the U.S. Treasury had written a $3.5 million check to the Democratic Party.]

Full post, including comments

Economists say that minimum wage laws are bad. They prevent young people from getting job experience. A minimum wage may prevent the job market from clearing in that a low-skilled worker might not be able to find a willing employer. Minimum wages help older workers and union workers by preventing new entrants to the workforce from undercutting them, but weaken the overall economy. Despite the fact that classical economics is against the idea of a minimum wage, the federal government has one and many states have their own minimum wages that are higher than the federal government’s nationwide minimum wage (chart).

It isn’t obvious why individual states have minimum wage laws. This posting explores the idea that a state might be better off with a moderately high minimum wage.

Consider a typical state with a mostly unionized workforce. By contract the state must pay $200,000 per year (including health care and pension obligation) to the average schoolteacher and $300,000 per year (including health care and pension obligation) to the average police officer. For every 1000 residents, the state must hire a fixed number of teachers and police officers, whose salaries, benefits, and pensions will be paid by taxing those 1000 residents. The richer the residents, the easier it will be to raise sufficient tax revenues to meet the union contract requirements. Poor residents, by contrast, may require the hiring of additional teachers and police officers. The poor are more likely to be involved in crime and their children are more likely to require special education.

Some states have such deluxe ways of running the government that they might need taxpayers who earn a minimum of $25 or $30 per hour in order to come out ahead. Why not establish a minimum wage, therefore, of $20 per hour? Anyone whose skills aren’t valuable enough to justify at least that level of wage will be forced to migrate to another state. Industries that can’t pay at least $20/hour will be forced to move as well and good riddance to them. Why have workers at $20/hour when the state needs workers at $25 or $30/hour to meet its past and future pension obligations? The state might want to encourage some younger workers to remain in the state to build skills and eventually command a $25-30/hour wage. Perhaps the minimum wage law could be tailored to worker age, so that it was legal for a 25-year-old to earn $20/hour but if he or she had not advanced to $30/hour by age 40, he or she would be forced to emigrate.

Why aren’t we seeing states with budget difficulties raising minimum wages?

Full post, including comments

“Small businesses are normally a major source of jobs but they have been particularly reluctant to hire lately because of weak sales and uncertainty about the pace of the recovery.” says this Reuters article, which is typical of a lot of reports on the U.S.’s anemic labor market. I happen to be involved in a small business, a Massachusetts flight school with about 30 aircraft, including two helicopters.

Let’s start with investment and bank lending. We have not invested in new aircraft or other capital equipment recently. Is it because the bailed-out banks won’t lend us money? I don’t think so. Most of our aircraft are between 2 and 11 years old. Airplanes can be operated safely and economically for at least 30 years. As evidenced by all of the 50- and 75-year-old planes that came to the Oshkosh, Wisconsin fly-in last month, even a 30-year-old plane may have quite a bit of life left. We will buy new engines and overhaul kits for our machines, but pay for those out of revenues. If we could not pay for the overhauls out of revenues it would mean that we were operating at a loss and that it would be smarter simply to close the doors. Our capacity is ample for the current customer demand. In fact, even if every other flight school in the Boston area were to shut down, our school’s existing fleet of aircraft is large enough to satisfy the total regional demand. Not everyone would be flying at 9:00 am on a prime summer weekend, of course, but everyone would be able to fly as many hours per week as desired.

Federal and state governments offer a lot of subsidies and incentives for businesses, or so we’re told, but we never have more than one admin person working the front desk at any given time. We don’t have qualified staff ready to go looking for government programs to tap into. We know how to serve private customers, but not how to get money from the government. This puts us at a disadvantage compared to big companies that can afford to spread the cost of a full-time “getting money from the government” employee.

A government that consumes a larger percentage of the GDP is a government that makes lobbying more fruitful. In a lobbying war, however, the small will inevitably lose out to bigger enterprises. For example, the Boston Red Sox, along with other professional sports teams, lobbied Congress and the FAA for years trying to get them to forbid banner-towing airplanes flying over stadiums during games. They did this in hopes of preventing anyone from advertising to fans other than themselves, thus enhancing their billions of dollars in revenue. The FAA refused to hand over airspace to private owners, but Congress forced them to do so after 9/11, arguing that a 3 nautical mile ban around stadiums was necessary for security. Because this taking of public property was done under the guise of security, it was sufficient to ban only banner towers; all aircraft were banned except for those owned or operated on behalf of the sports team. The security value of the ban is negligible. A terrorist in a jet would fly through the 3 n.m. ring in about 1 minute. There would be no time to evacuate the stadium. It isn’t even clear that there are procedures in place for FAA controllers to inform stadium owners that someone has violated this security zone and therefore there would be notification to fans that it was time to duck.

What’s the result of the government having grown a bit larger to serve the needs of the Boston Red Sox? Some additional air traffic controllers are required because their work has expanded from just separating aircraft from each other to also making sure that aircraft don’t impinge upon the new privately owned airspace. So all taxpayers become slightly poorer. How about the effect on small business? The banner towing guys have suffered a huge loss in business. Our flight school suffers a substantial loss in business because we can’t fly helicopter tours during games. We wouldn’t want to fly over Fenway Park, especially, but the 3 nautical mile zone covers nearly all of downtown Boston. We also need to pay staff to check the Red Sox schedule every time a customer calls wanting to schedule a tour. We’ve had tours where we ended up having to turn back to the airport because the Red Sox schedule had changed due to a rained-out game earlier in the week and games were added that did not appear on a schedule printed earlier.

You might think that we’d be doing well because the government has decided to put more money into education. The new funds, however, generally can only be used at degree-granting institutions. Once enrolled in a “bachelor’s of aviation” program, the spigots open up for the student’s tuition, housing, and food. This is great for established large colleges and universities because, even though they may charge 50% higher prices than our school, it works out to be cheaper for the student. Our prices are lower and our instructors are more experienced, which gives us a competitive advantage when dealing with privately-funded students. In a world where most of the new students are government-funded, however, we are inevitably out-competed by the big schools.

The bigger the government gets, the worse our small business does both in absolute terms and in terms of our competitive position. Anyone else out there running a small company (other than one set up specifically to contract with governments) with a different story to tell?

Full post, including comments