Month: October 2011

I have discovered that there is only one thing worse than paying $5,000 per year to the electric utility and thereby accelerating global warming… not paying anything for electricity because there is none to be had. Our house lost power for about 24 hours, which meant no heat, no water (it depends on a pump from a well in the backyard), and no landline (Verizon FiOS helpfully includes a backup battery that is exhausted after 8 hours)).

Perhaps it is time to adopt a 30-year-old friend’s philosophy: “I don’t understand why people are worried about global warming; the Earth needs to last only 50 more years.”

Public mourning continues for the loss of Steve Jobs, who brought us a touch-screen interface for our phones. Perhaps those of us who live in the Northeast should set aside a moment of thanks for the minds who brought us practical electricity: Maxwell, Volta, Orsted, Ampere, Faraday, Ohm, Tesla (Mr. AC Power). Their achievements may have been minor compared to those of Jobs, but without their early work, how would we charge our iPhones?

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I’m just back from a trip to Washington, D.C., where people take politics so seriously that politicians’ speeches are broadcast in full on the radio (e.g., a full half hour was devoted to a talk by Joe Biden to some Democrats in Florida; anywhere else in the U.S., a Vice-President would have to be Raptured or undergo a sex-change operation in order to merit 30 minutes of uninterrupted radio time). A handful of friends there asked me what I thought about the various “flat tax” proposals being put forward. Most of these folks have worked in Washington their entire lives and therefore have no understanding of what it might be like to work in a private company selling goods and services to private customers. So they asked “Would a flat tax make it easier to run a business?”

My reply was that most of the costs of the present system to me relate to figuring out how much my income actually is, rather than multiplying that income by one or more rates. Different capital goods must be depreciated on different schedules. Expenses must be categorized. Losses are sometimes deductible (ordinary business) but sometimes not (loss from renting out real estate, unless one is working full time in real estate). All of this costs me about $2500 per year in accounting fees and a couple of weeks that could have been spent generating additional income rather that poring over statements. The cost/hassle would be the same under a flat tax.

So I’m not motivated to advocate for a flat tax, but I do advocate that we eliminate home mortgage interest deductibility (subsidizing one of the most unproductive corners of the economy (a worker who goes home to a fancy house is no more productive than a worker who goes home to a simple house)) and allow businesses to choose whatever depreciation schedule they like for capital expenses, including immediate write-off of 100 percent (could simplify compliance by allowing a company simply to look at its checking account balance annually and infer the previous year’s income).

In general, all of the tax talk seems like a bit of a distraction. If we re-tweaked the income tax code would it then become profitable for companies to hire America’s 15 million unemployed folks? If the problem is that these workers aren’t educated or skilled enough and that they require health insurance in the world’s most expensive country for health care, a change in income tax policy isn’t going to make a big difference.

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Given that the SSD or hybrid disk drive (e.g., Seagate Momentus) would seem to be ideal for laptop computers, why aren’t they more popular? To research this posting, I visited the HP and Dell sites and looked at their high-end 17″ laptops. Neither was available with a hybrid drive (Seagate says that 1 million have been shipped, which sounds great but that’s a negligible market share), despite the fact that these retail for as little as $108 at Amazon.com (see Seagate Momentus XT 250 GB). HP and Dell charge approximately $600 extra for an SSD over a conventional hard drive, despite the fact 256 GB hard drives retail for as little as $365 at Amazon (e.g., Crucial 256GB m4 SSD). Why wouldn’t a notebook computer maker want to encourage SSD sales so that they can (1) have consumers talk about how fast their new Brand X laptop is, (2) reduce failure and return rates, and (3) cut down on build time (presumably it is faster to load an OS onto an SSD-based laptop)? So one would naively think that Dell and HP would not mark up an SSD more than a retailer such as Amazon or Newegg.

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A reader sent me this article on how farmers in Alabama can’t find Americans willing to take farm jobs formerly filled by eager illegal immigrants. One big objection to the work is that it is physically demanding, yet millions of Americans voluntarily pay for gym membership and/or boot camp-style fitness programs. Maybe the farm jobs should be advertised as “lose weight working out in the sun”.

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I was listening to an NPR program about a year ago about the fuel efficiency of different kinds of travel (the sample trip, was, I think New York City to Chicago). A regular car packed with four people was pretty good. A commercial airliner wasn’t so bad. A passenger train was terrible. It surprised me because freight trains are so efficient, but then I reflected that the total weight of an AMTRAK car is huge compared to the payload of people inside. The following article is interesting because it talks about why passenger rail cars in the U.S. are so heavy: http://www.ebbc.org/rail/fra.html (also has some stuff about why Acela is such an unreliable service, despite the fact that it is so much slower than anything in Europe or Japan).

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Among the achievements of Steve Jobs, the elevation of user experience design to the point that we might almost call this the Age of User Experience. Let’s consider the iPhone. Here are the technologies that went into making it a practical consumer item:

• plastic molding (Leo Baekeland)
• stored-program computer (Turing, von Neumann)
• transistor (Bell Labs)
• integrated circuit (Fairchild)
• LCD screen (RCA, Westinghouse)
• cell phone network (Bell Labs, Nokia, Motorola, Siemens, Ericsson)
• Global Positioning System (U.S. military and The Aerospace Corporation)
• pocket computer (Sharp, Palm, Apple Newton, others?)
• multi-tasking operating system (MIT)
• Unix (Bell Labs)
• graphical user interface (Xerox PARC)
• MP3 player (various)
• app phone (Danger (became T-Mobile Sidekick))

Aside from the pocket computer, neither Apple nor Steve Jobs had anything to do with the development of any of these technologies, yet details that an engineer would regard as tiny turned out to make a huge difference in market acceptance and profitability. Business managers can no longer ignore such details.

Anyone today who has a job in user experience should therefore thank Steve Jobs.

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I talked at lunch today with a Nobel laureate in Economics (name withheld because he is a friend’s relative; let’s call him “Bob”). Bob is an expert on macro-economics and we talked about unemployment in the U.S. and the high cost of health care, especially government-funded health care such as Medicare.

Like other economists, Bob impressed me with his ability to ignore the details and texture of real life. I reminded him that two years ago I suggested that a lot of the 15 million unemployed folks simply did not have the skills and/or work ethic to be worth hiring in today’s economy, e.g., one where a sloppy worker can ruin a $10 million batch of goods or download a virus and cost the IT department $50,000. I had also suggested that the cost of health care was too high to make it worth hiring Americans in any job where providing health insurance was customary (see this posting). At the time Bob had castigated me for my pessimism and assured me that growth was just around the corner due to the upcoming fiscal stimulus spending.

Two years and about $3 trillion of deficit spending later, the U.S. economy has not responded the way that Bob predicted. I tried to engage him on the skills and education question and he responded that we don’t know how to fix K-12 education so we shouldn’t put more money into it (a fair point, perhaps). Better to spend on physical infrastructure such as roads, airports, dams, etc. He cited a report that showed America’s airports to be in “Grade D” condition. This was a surprise because most U.S. airports (the runways and taxiways, not the terminals) strike me as being in excellent shape. Mostly I was impressed by Bob’s lack of interest in what goes on at the individual level. For example, he hadn’t thought about what it would take for an individual business person to hire a new worker here in the U.S.

The debate over Medicare is very abstract when politicians and economists talk about it. Nobody can quite figure out how we spend twice as large a slice of GDP on health care as other countries. Yet a single conversation with a doctor would add a lot to an understanding of the problem. A friend of mine (“Joe”) is a pulmonary/critical care doctor. An elderly patient comes into the hospital. Dr. Joe tells them “Your father is going to die within two weeks. To keep him alive beyond tonight will require a lot of machines and about $300,000 of Medicare expense. What would you like to do?” The response was “Everything.” Dr. Joe says “It didn’t make a lot of medical sense, but I get paid by Medicare either way so we did everything.”

Reasoning and making decisions from anecdotes is obviously not very sound. On the other hand, it seems that economists are led to a lot of unsound conclusions by ignoring the anecdotes.

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Folks:

I’m looking for good Columbus Day weekend ideas for here in New England. Apple picking does not count. Hiking and biking are too obvious.

If someone asked me what to do I would tend to say “helicopter tour over the foliage”. A friend is going to stay in a lighthouse (now bed and breakfast) on an island off the coast of Maine (see http://whiteheadlightstation.org ; click top of page for Columbus Day package). If the weather is bad, maybe the Ellsworth Kelly show at the MFA (open on Mondays, unlike a lot of museums)?

Who has better ideas?

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