Author: philg

I attended a housewarming on Sunday and met a guy who had founded and run a software company that employs nearly 1000 programmers, some here in New England and some in India. He is now retired and looking for new investments to make. How does he feel about the U.S. as a place to do business? “I think that the U.S. is going to blow up due to the expansion of government obligations. I’m not sure if the government will default on its debt, stop paying pensions, or generate hyperinflation, but I know that the current situation isn’t sustainable.” Due to fears of dollar devaluation and inflation here, this guy did not want to hold any additional dollar-denominated investments. As far as programmers went, he would prefer to hire them in India rather than take on the obligation of payroll taxes and health care expenses here. He had enjoyed a positive experience with his team of programmers in India (this is somewhat unusual in my experience; the folks I’ve talked to at multinationals have been impressed with their Chinese colleagues, but not with departments in India).

It is possible that the best minds of economics are doing exactly the right things with the U.S. economy, e.g., indulging in massive deficit spending, tossing in stimulus spending on top of the usual trillions in federal spending, having the Federal Reserve buy up Treasury bonds (i.e., print money), borrowing from our grandchildren, sweetening public employee salaries and pensions, ladling out subsidies to government-favored industries, etc. But even if these are the right things to do, if they scare business people away from investing in the U.S. the result will be economic stagnation (which actually means “decline” from an individual perspective, since the population continues to grow even as the economy does not). Maybe federal and state governments should invest education and PR to explain to folks how they are not going to default (to explain why reports such as Morgan Stanley predicting government default are wrong).

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Here’s a Boston Globe article about the opening of Newton’s new high school, after 10 years and $200 million spent. It replaces a school built in the 1970s that looks a lot more solid than most of the buildings and houses in Massachusetts. I found it interesting that the journalist did not take the time to put the cost into context. A simple calculation and Google search reveals that the Newton school cost about $500 per square foot to build against a nationwide average of about $170 during the period of major construction (source).

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An electronics/software glitch in communication with a remotely piloted Navy helicopter led the federal government to violate its own restricted airspace over Washington, D.C. (story)

John and Martha King, the world’s best-known flight instructors, were held at gunpoint by four police cruisers full of cops. Their Cessna 172 had the same tail number as a Cessna 150 that was stolen nearly a decade ago. The old tail number was still in a database at the El Paso Intelligence Center, which keeps America safe from drugs and terrorists. The police got excited when they saw the tail number pop up in an IFR flight plan and had the Santa Barbara airport staked out. The cops never asked themselves “If I had stolen an airplane, would I file IFR flight plans using the stolen plane’s actual tail number? And then go into a busy Class C airport?” Nor were they able to tell the difference between a Cessna 150 (two seater) and a Cessna 172 (four seater). Full Story: AOPA.

The British Airways Boeing 747s apparently have the ability to play a recording to passengers: “This is an emergency. We may shortly need to make an emergency landing on water.” Folks on a Hong Kong to Heathrow flight did not appreciate hearing this message while over the North Sea in a perfectly functional aircraft. (more)

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A friend who works with a lot of libertarians says “most of them are weird and socially awkward”. My explanation was that when nearly 50 percent of the economy is run by the government or is government-funded, advocating libertarian ideas at a social gathering would be extremely rude.

At first glance, you’d think that most people would be okay with the core libertarian idea that they could keep 90+ percent of their income and spend it however seemed best, rather than hand over what may soon be the majority of their income to a governing elite that will ladle it out to politically powerful interest groups. Suppose, however, that in a gathering of 20 adults, one is a medical doctor, one is a schoolteacher, one is a 50-year-old retired police officer, one is an engineer at a defense contractor, one is a prison guard, and four hold administrative positions at local, state, and federal agencies. Will the doctor want to hear that young people should not be taxed to pay for a 90-year-old’s $500,000 death in the ICU? Will the schoolteacher want to hear that schools should be privatized and her $200,000 in compensation (salary, health care, pension commitment, etc.) for 9 months of work subjected to market forces? Will the 50-year-old retiree want to hear the suggestion that politicians should not be allowed to promise public employee unions pensions in exchange for votes? Or hear that taxpayers shouldn’t be on the hook to pay him an inflation-adjusted $130,000 per year until his death? Will the defense contractor want to hear that we should only have a large enough armed force to prevent Canada and Mexico from invading? Will the prison guard want to hear that drugs should be legal and that most of the people he is paid to incarcerate should be free? Will the administrators want to hear that their agencies shouldn’t exist at all?

Given the social awkwardness of this kind of encounter, which becomes ever more likely as government consumes an ever-larger percentage of GDP, I am predicting a decline in the popularity of libertarianism (not that it has ever been popular or advocated by more than a handful of elected politicians). People can live with the government taking 50 percent of their income and wasting it; that would simply set Americans back to the standard of living enjoyed in the 1950s. People cannot live with never being invited to another social gathering.

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When passing a sign explaining that a road project was “funded by the American Recovery and Reinvestment Act”, a friend always shouts out enthusiastically “Thank you, Pharaoh, for the gifts that you have bestowed upon us.”

More: official sign guidelines; article on the cost of one sign; Wikipedia article on the term “Pharaoh”

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Today was Fair Weather Flying‘s first helicopter charter operation. A customer from California needed to attend an event in Woods Hole, Massachusetts. He took a red-eye flight from California, showered at Signature Flight Support at Logan Airport ($228 in airport, security, and FBO fees), and then got into our helicopter for the 30-minute ride to the Falmouth Airpark. The weather was perfect. The controllers were helpful, though somewhat anxious due to the fact that the Falmouth airport is 2 nautical miles from the “no-fly” zone established around Barack Obama’s Martha’s Vineyard vacation (approximately 3000 square miles of airspace up to 18,000′ have been mostly shut down to accommodate Mr. Obama; the cost to area flight schools is thousands of dollars every day and the impact on sightseeing operators on the Cape and Islands has been devastating; aviation businesses here were hoping the President would choose to vacation in the stricken Gulf of Mexico, but instead he has returned to his 29-acre rental beach house (details)).

Kathleen and I served our customer a bottle of Poland Springs water, gave him a hardcopy of Travels with Samantha for in-flight reading, and watched as he departed smiling into a waiting taxi. Then we ferried the helicopter back to Hanscom Field, landing around 10:00 am.

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Folks: In shopping for a digital picture frame, I found the following:

• Vizio 19″ LCD television for $190 (native resolution 1366×768, USB port for thumb drive filled with JPEGs)
• Sony 10-Inch Digital Photo Frame for $220 (native resolution 1024×600)

Isn’t the LCD television a better value? Yet even in McMansions, where space is not an issue and sightlines to the digital picture frame could be quite long, I haven’t seen anyone use a small TV as a digital picture frame. What am I missing?

[Power consumption for the TV is higher, as you’d expect with so much more screen area; about 25 watts compared to 10-14 for a digital picture frame.]

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I got a look at a benefits statement for a 40-year-old worker at a large Boston-area employer. This worker has a medical and dental plan that covers a family of two adults and one child. The deductibles are low, which makes these costs a good estimate of the total expected cost of health care for this family. Massachusetts already has a universal coverage system almost identical to the one the U.S. will adopt nationwide in 2014, so the cost in Massachusetts today is probably a good guide to what health care will cost nationally.

Here are the numbers: $19,022 for membership in an HMO, which was supposed to be the magic bullet for controlling health care costs in the U.S; $1,781 for dental; total = $20,803.

Let’s compare this to median income in the U.S. The Census Bureau estimates that median household income in 2008 was $52,029, which might include two working parents plus the kid’s lemonade stand revenues. Bureau of Labor Statistics says that the median hourly income in the U.S. was $15.95 in May 2009, which works out to $31,900 for a person working 40 hours per week, 50 weeks per year.

When you consider that local, state, and federal governments need to collect substantial tax revenues from the median worker in order to fund their near-50% share of the U.S. economy, this means that health care for a small family is likely to consume 100 percent of the after-tax income of a typical U.S. worker.

Another way to look at this is that we’ve produced a great health care system for rich people, but we forgot to make most Americans rich!

[The mismatch between income and ability to pay for health care should be widening. Median wages in the U.S. are surely falling, if only because so many Americans now have a wage of $0. Health care and health insurance costs have risen every year in both Massachusetts and nationally. Sources: A 2009 article on health care inflation outpacing salary increases; an article today comparing health costs to reported inflation]

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This Fortune magazine article compares countries according to how their debt levels relative to GDP, population, energy consumption, and land area. Japan is an outlier, with a ridiculous debt level compared to what you’d think its capacity to repay that debt would be. I wonder if this isn’t the best explanation for Japan’s slow economic growth.

Stepping back from an economy we see a group of people producing some stuff. They consume what is necessary for food, shelter, clothing, transportation, etc. What’s left over is available to pay debt, provide a return to investors, and invest in capital equipment such as factories. If debt obligations are high, most of the society’s surplus will go to pay debt. The return on existing investments will be low and there will be no incentive to make additional investments, even if there were enough surplus available to make such investments.

What do folks think of this Fortune article and its application to Japan?

[Separately, the article points out that the U.S. is a very unattractive place to invest compared to developing countries such as China and India, which have negligible debt.]

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If you’re not a regular OPR* listener, you may be interested in this link to a story on Morning Edition. I was interviewed regarding East Coast Aero Club’s experience with selling helicopter lessons on Groupon.

[They edited out my comment that “The Obama Economic Miracle has yet to arrive at East Coast Aero Club”]

* OPR = Obama Praise Radio.

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