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American Airlines and US Airways propose to merge to top the list of world’s largest airlines. According to this WSJ article on a 2012 J.D. Power survey, American and US Airways were near the bottom in customer satisfaction among U.S. legacy carriers, all of which as a group were disliked compared to newer carriers such as JetBlue and Southwest. In fact, US Airways, whose management team will be running the combined behemoth, ranked dead last among all U.S. airlines.

In a free market it would be surprising if the folks who delivered the worst customer experience ended up with the largest market share. So to what can we attribute this spectacle?

• the airline market is not free: (1) carriers such as US Airways and American that are allocated international routes end up with an almost insuperable advantage over carriers that don’t get these handouts from government, (2) efficient foreign carriers such as Ryanair are prohibited by the U.S. government from taking Americans from New York to Chicago, which they could do for 25 percent lower costs than Southwest and JetBlue
• the airline market works, but sluggishly due to the long lead time for ordering new airplanes (this seems less plausible given how many airliners are leased from big neutral leasing companies such as AIG and GE Capital and could be moved quickly from one carrier to another)
• customer satisfaction surveys are meaningless; consumers will fold themselves into the cramped coach seats of a hated carrier such as US Airways or American if it is $10 cheaper

[Separately, for those who are concerned about the apparent lack of fairness in the American economic system, Tom Horton, the guy who impoverished American Airlines shareholders while earning a $3.3 million annual salary (source), will receive an additional $20 million in severance pay (source). Plus, since a guy with $20 million in the bank won’t be able to afford the new fares that American, United, and Delta are able to collude on, he also gets to fly for free for the rest of his life on American. (The shareholders of AMR, who might have invested hard-earned funds as early as 1930, are getting a 3.5 percent stake in the new merged company, worth about $350 million supposedly; when Tom Horton came back to AMR in 2006 the shareholders had something worth about $6 billion (source).)]

Related: http://philip.greenspun.com/flying/unions-and-airlines

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I’m just back from a trip to Antarctica that, incidentally, required staying a few days in Argentina. Considering that the country was the fourth richest in the world it is shocking how far it has fallen in the last 100 years. The CIA Factbook puts per-capita purchasing-power adjusted GDP somewhere in the middle of the world’s nations, but the statistic doesn’t square up to the realities of life in a country where people have to stare at the ground whenever walking down the sidewalk (to avoid tripping over broken pavement, stepping in dog poop, or tripping over discarded bags of trash). Also, now that the government is a little over a year into its money-printing campaign it is hard to know what things cost. Do you use the official required-by-law exchange rate of 5 pesos to the dollar or the real one of 8? The CIA says that Chile has about the same per-capita income but in fact material life in Chile seems much richer, with newer cars, functional systems, etc.

I last visited Argentina about 10 years ago, shortly after the “peso crisis”, and the country does not seem to be in better shape now than then.

Things that don’t work in Argentina:

• Internet: incredibly slow in most hotels; a hotel owner in Buenos Aires told me that he has connections from both the cable company and the phone company so as to have a good chance of being able to use one. “It will go out for a few days at a time and I’ll call and they say they’re working on it.”
• Post Office: Hotel clerks didn’t know how to send a postcard. There are no mailboxes on street corners. I asked an Argentine friend how this could be and he replied “you should know the mail system doesn’t work! people don’t use mail there, they walk to banks to pay bills and use couriers for the rest. I haven’t seen a letter come or go in decades. If you mail something (from there or to there) it goes to /dev/null”
• Domestic airline flights: The roughly 180 people on our Antarctica cruise suffered a variety of sudden schedule changes, delayed checked luggage (for which there were no explanations and the fancy bar coded tags were never scanned in at the origin airport so they couldn’t be tracked), unexplained late departures, etc.
• Getting out: On a Monday night it took almost two hours of standing in line to check in at United Airlines (1 hour; the airline was operating a total of two flights that night), get through security (30 minutes; four metal detectors working and one idle), and be photographed and fingerprinted at passport control (20 minutes).

It is not hard to see why people would be unenthusiastic about doing business here.

I’d be interested to know readers’ thoughts on how Argentines have managed to accomplish this economic nosedive.

One theory would be to blame the political system. Argentina has a democracy, a system for handing out the fruits of economic growth to political cronies, in an economy with minimal growth. In order to get elected or remain in power, politicians are forced to hand out massive amounts of public wealth to various interest groups. This results in a huge drag on folks who are trying to earn money without political connections.

Another theory would be to blame a nationwide attempt to get something for nothing. It seems that Argentina has tried virtually every possible method of getting wealthier except working harder. The current government has currency controls, an official exchange rate, laws against changing money at the real rate, a variety of export and import controls, etc. Graffiti demands “Bread. Work. Justice.” This theme has been echoed in demonstrations since the 19th century and is depicted in a 1934 oil painting by Antonio Berni at the MALBA art museum (see accompanying photo album). It is hard to think of a country where mass demonstrations of people demanding that they be made wealthier has resulted in an actual increase in average wealth (the Greeks are trying this right now!).

Finally one could look at the Argentines themselves. The government didn’t throw trash in the streets. It was in each case an individual who was too lazy to walk a block or so to a dumpster. Nor did the government decide to walk a dog without carrying a pick-up bag. On my 2003 trip to the country I remember a young man telling me that the American government, especially the CIA, was responsible for keeping Argentina down. I pointed out that the U.S. government had been unable to get rid of Fidel Castro, 90 miles off the Florida coast, despite four decades of trying. What made him think that the same government was somehow able to stop him, 5000 miles farther south, from going to college or manufacturing a product and selling it to the Chinese?

I’d be interested to hear from readers who’ve lived in Argentina. Meantime, check my photo album.

[I do recognize that Argentina’s comparative material poverty does not mean that the U.S. is a better place to live. The life of the soul can be richer in Latin American countries, as I note in http://philip.greenspun.com/non-profit/. In a society where it is more difficult to get ahead with hard work people generally spend more time with friends and family. Also, the layout of Latin American towns fosters easier social connections than the U.S. with its bleak lonely suburbs.]

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President Obama wants more 4-year-olds to go to “preschool” (a.k.a. “day care”) rather than being home with a parent or relative. People are debating the merits of having a child learn from a day care worker rather than from a parent or relative. What I haven’t seen is a discussion of what the effect is likely to be on childhood obesity.

As the parent of a three-year-old and the owner of lenses from 8mm to 600mm, I spend a lot of time at an upscale preschool/day care center as one of the “yearbook photographers.” Oftentimes I see the same kids outside of their school. One thing that I have observed is that the children are much less physically active than the same children at home, in a museum, or at a friend’s house. First of all, the preschool needs to do crowd control. There are footprints painted on the floor in front of the sink, for example. Before snack or lunchtime the kids will line up on these footprints and wait until it is their turn to wash. A child at home who wanted to go out would throw on a coat, hat, and gloves and run out the door. A child in day care must wait for the 15th child to finish this process while standing patiently on a painted footprint. Instead of running out the door the child must hold onto a rope so that the teachers can verify that nobody is unaccounted for. Out of a 7-hour day care day the children get about 45 minutes of outdoor unrestricted running around time.

Once indoors it is often the case that there is one teacher in charge of 15 children. There are, by law, additional workers in the room, but they are often busy cleaning up from the previous activity and/or setting up the next meal or other activity. The easiest way for an adult to control 15 children is to tell them “sit on your bottom” and then allow only one child at a time to speak, touch a musical instrument, or get up and retrieve something. A lot of stuff is “serialized” as we say in the world of computer nerddom. One child does while 14 children sit and watch.

A friend of mine who is a medical doctor and mother of two said “Even when it is not explicit, day care encourages children to be sedentary. The teachers will subtly reinforce that a child sitting quietly is a good child and a child running around is a bad child. Even if they aren’t aware of it themselves and aren’t saying anything directly, the teachers reward the children who don’t move.”

I have a bunch of friends who are stay-at-home parents. Their children behave like members of a different species. They literally run laps around the yard or a tennis court while the day care children are saying “I want to go back in the house.” The non-day care kids are much harder to manage in the home, running, jumping, climbing, etc. The day care child plays with magnetic tiles. The non-day care child puts the magnetic tiles on top of a T and hits them across the room with a baseball bat (I witnessed this just on Tuesday!). His younger sister is apparently getting ready for a career in professional wrestling, to judge by the alacrity with which she jumps on my stomach if I am lying down.

Personally I do think a child benefits from a nursery school/day care/preschool environment for a certain number of hours per week, e.g., on the traditional schedule for nursery school of three hours per day/three days per week. But after a point, I wonder if we aren’t risking raising a generation of kids for whom physical activity is an alien concept.

[There is an exception to the day care = idleness rule that I’m aware of… some friends send their children (ages 4-6) to a Waldorf school, three days per week, where the children take a two-hour walk outdoors every day, rain, shine, or snow.]

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Folks:

Having failed to get a Google Chromebook to work as a photo backup device, due to its inability to read exFAT SD cards and its inability to communicate with a Canon 5D III body, I invested $400 in an HP laptop computer running Windows 8. Using a Lexar card reader, the machine was able to read a 128 GB CF card and the laptop also included a built-in SD card reader. Via USB the machine was able to recognize and browse files on cards within the camera body. So far so good. After downloading some extra software from Microsoft, the computer was even able to display the RAW files within the File Explorer.

Windows 8 on a non-touch laptop proved to be even more frustrating than using Windows 8 on a touch-equipped computer. The included photo applications proved flaky. If you popped in an SD card the computer would ask if you wanted to import the photos on the card. It worked great the first couple of times, putting photos into folders by date. After that the application either would try to re-import all of the photos, including ones that it had already imported, or just a handful, missing a lot of new photos.

Some combination of the laptop and the software resulting in the computer exhausting its battery while I thought it was sleeping. This resulted in a rapid shutdown and, after that, all of the critical “Libraries” from File Explorer were inaccessible. Double clicking on a library would result in a message “Videos.library-ms is no longer working”. None of my files were lost but my confidence in NTFS on Windows 8 was shaken.

Mostly my memory of trying to use this device is constant pressing of the “Windows” key on the keyboard to get out of some Metro app, then using the mouse to click on the “Desktop” app to get back to whatever it was that I was trying to do.

The only thing that truly worked well was Picasa, which made sorting files and pushing them up to shareable albums very easy. The one knock against Picasa is that it doesn’t seem to be bandwidth-smart. If you’re on a slow connection and add the same photo to two online albums it seems to upload the photo twice. Also, the minimum size/quality for Web sharing is 2048 pixels. That’s way too big when one is connecting to the Internet via an Iridium satellite phone.

There must be something that Windows 8 is good for.

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I’m co-hosting an Argentina/Antarctica-themed party this evening and trying to shop for Argentine products. It is easy to find Argentine wine but none of the stores in Cambridge have Argentine cheese. I searched a bit and discovered http://www.usitc.gov/publications/docs/tata/hts/bychapter/1210C04.pdf, which gives the import quotas for cheese by country. It turns out the annual aggregate amount is about 50 million kg of cheese from all countries. That works out to about one third of a pound per American. That’s only about 1/100th of total cheese consumption in the U.S., therefore that can legally be from a foreign country.

It is a good thing that we are so eloquent at educating other countries on the benefits of free trade…

[Separately, note the crazy amount of cheese that can come from New Zealand, nearly half as much as from all of the European Community.]

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Back in August 2011, I posted a prediction that Apple’s growth would slow. Today Apple announced flat profits and the stock declined 6 percent in after-hours trading despite the company not having suffered a truly failed product launch (like Windows 8!). One of my follow-up comments on the original posting explained the theory better than the original post:

Mark: “Five years from now you’ll be using some new Apple product that you aren’t even imagining yet.” That’s also true of BMW (1/10th the market cap of Apple) and just about every other company that makes consumer products. The capacity to innovate is already priced into Apple stock, just as it is into BMW’s, and does not have infinite value. Since Apple has been very successful in the past, the stock price reflects investors’ estimate that they will be very successful in the future. So where another company might get a huge lift in value from a new product launch, for Apple it will already have been priced in. By contrast, a failed product launch could bring Apple’s perceived value down.

(The stock price, of course, could still go up if Apple decides to retain earnings or do stock buy-backs rather than pay dividends.)

How would you have done if you’d read my posting, thought about it, and sold Apple in early September 2011? You’d have received about $400 per share and presumably purchased the S&P 500. The stock closed at $514 today but the after-hours trading decline of 6 percent suggests a price of $483. SPY has gone up 26.5 percent since then so you’d have $504. I don’t think that this analysis correctly reflects the difference in dividends paid by the S&P compared to Apple. The fact that the two investments performed so similarly suggests that my hedge fund genius friend Tom is correct when he says that all investment classes should be expected to produce the same return.

Readers: What’s the next act for Apple? Let me start by listing off a partial list of somewhat expensive products that are painful to use, contain at least some electronics, and that would be relatively easy to improve:

• big-screen televisions and Blu-Ray players (whenever I want to use one the device decides that it is time for it to download and upgrade its software)
• cable television (flipping up and down through a list of 1000 channels?!?! How is it that an interface developed for a TV with a rotary knob to select among 10 possible channels was ported to the 1000-channel case?)
• compact digital cameras (a million buttons and menu items, almost none of them relevant to a photographer’s objectives in making a picture)
• Windows 8
• Android tablets other than Amazon’s (I have the Google Nexus 7 and it simply cannot hold a charge so it is essentially limited to being plugged in full time; ridiculously poor power management compared to the iPad)
• automobiles (start with the fact that the speedometer is front an center rather than a moving map; why would I care about my speed if I’m in heavy traffic (which I always am, since I drive in the U.S.) and/or if I am traveling at a legal speed (which the car knows from its navigation system database))
• houses (even a toilet knows when you’re standing in front of it; how come all of the stuff in a recently built house isn’t smart enough to detect the “nobody is home” case and turn down the heat?)

Apple’s superior profitability seems to stem from the spectacular stupidity of other companies and sometimes industries. One would think that this source of profit would dry up as the world economy becomes globalized and market discipline kills off the dullest competitors. However, the examples above show that there is still a tremendous amount of opportunity for a company with enough scale to reach consumers and enough taste not to make something absurdly bad.

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This is the time of year when new members of Congress and new Cabinet Secretaries take to their desks. One thing that most of these folks have in common is that they are pretty old. John Kerry, for example, was born 70 years ago (1943). Chuck Hagel was born 67 years ago (1946).

Old people are more cautious and presumably wise than young people. But they (“we”; I might as well include myself since I will be 50 this year) have some cognitive deficits and one of those is that America is the world’s greatest collection of smart people.

One example is a dinner party that I attended back in 2012 hosted by a couple whose average age was about 70. The husband is a Harvard graduate. The two were fretting about global warming. I said “Well at least we won’t have to worry about continued pollution, including carbon dioxide emissions, from cars. As soon as there is a good battery technology people will very quickly switch to electric cars and they will be a lot more efficient. It might take 10 years, of course.” (I wrote about electric cars in this 2008 posting.) They said “You’re an MIT graduate. Why don’t you design a better battery?”

Their confidence in my ability, simply due to having attended MIT, would have been touching if not for the fact that this was shortly after A123 Systems, the best-known MIT battery spinoff, had filed for Chapter 11 bankruptcy protection. The Boston Globe had been running articles about how they were going to their corporate grave with $400 million in tax dollars plus another $400 million in private capital.

Last year was also tough on Harvard’s reputation for unusual brilliance. The most direct spinoff of Harvard Business School is Monitor Group, whose job was to tell companies how to be more profitable using the unique genius that could only be found among Harvard Business School professors and graduates. Monitor went bankrupt in November 2012 (see this Forbes story).

Leaders who came of age during a period of American dominance have a track record of complacency that has led to whole industries dying. When Kerry and Hagel were in college, for example, RCA and Philco were world leaders in electronics. Samsung had not entered the market.

Maybe the answer is to continue appointing older managers in order to benefit from their wisdom but decorate their offices with photos of the latest products designed and built in the world’s rapidly growing economies and also photos that will remind them of American hubris and the consequences of complacency. (Reader suggestions for the photos would be welcome!)

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I went to see Zero Dark Thirty with a couple of my friends, which is to say with a couple of helicopter pilots (since virtually all of my friends have ratings it seems). We were super-excited to see the helicopter scenes but they ended up looking like someone had pointed an iPhone at an 8-year-old’s elementary school diorama.

Comparing the movie to the Wikipedia page on the operation, it seemed reasonably accurate. The helicopter stuff was horrible, though. A pilot, just before the helicopter crashes, says “We’re losing power.” If the problem had been settling with power or vortex ring state, as officially explained by the government, it seems very unlikely that the pilot would have said that. None of the three of us were satisfied with the helicopter action in the movie or the explanation of the cause of the crash. Further, the replacement helicopter shown was another Blackhawk whereas in real life it was a Chinook.

Speaking of vortex ring state… I’m surprised that there has never been an investigation into the loss of the $21 million Blackhawk during that raid. A theory about the walls of the compound causing vortex ring state has been put forward, but much simpler problems such as being too heavy to hover out of ground effect and/or hitting the tail rotor on a tree or wall are the cause of a lot more crashes. The standard way to get into settling with power is descending relatively fast while not moving forward much, e.g., if you were trying to land in a confined area without giving the folks on the ground a long opportunity to take a shot at you.

It has been nearly two years… why hasn’t a aerodynamics grad student done a simulation of whether or not the walls of the compound could significantly contribute to a settling with power situation? This seems like a great master’s thesis topic!

[Update: I ran into a Blackhawk pilot, who had also served in the Army’s test flight program, and he said that no part of Army helicopter training ever mentions the possibility of terrain shape making settling with power more or less likely. As far as he was trained and had experienced, the only factors in settling with power were the standard ones that civilian pilots are taught to avoid, e.g., moderate vertical sink rate with little to no forward airspeed. He said “It was hot and high and probably they were too heavy.”]

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The New York Times on January 12, 2013 published an article “Darwin was Wrong about Dating”. It says that the evolutionary biologists were wrong when they said that men were interested in spreading their genes by having casual sex whereas women were more interested in a stable relationship with a companion who will help rear their cihldren:

“Lately, however, a new cohort of scientists have been challenging the very existence of the gender differences in sexual behavior that Darwinians have spent the past 40 years trying to explain and justify on evolutionary grounds.”

If you’re a man and have had any difficulty in getting women to agree to sleep with you, reading this article would be a good way to feel worse about yourself. According to the eggheads with clipboards, it is not that women typically say “no”; they just happen to say “no” most of the time to you.

[On a more serious note, the article fails to consider changes in the incentive structure for women who have children without the continued voluntary assistance of the father. First of all, the social stigma of raising a fatherless child has been mostly removed. At lower paternal income levels, a variety of forms of government assistance will provide the single mother with roughly $45,000 per year in tax-free benefits, depending on the state (see this chart). That is more than the average American worker’s take-home pay. At higher paternal income levels, court-ordered child support payments may provide the non-working single mother with a substantially higher (tax-free) income than working at an average wage. Whereas an unplanned pregnancy would have at one time been a significant “cost” of a night of casual sex, both in terms of social stigma and financially, today in American society a pregnancy that results from casual sex may be a net benefit. After the obvious benefit that children are wonderful companions and a lot of fun (almost all the time anyway), the most notable part of this benefit is the cash component, yielding more than $1 million tax-free prior to the child reaching adulthood. There are a lot of things that Homo sapiens did not evolve to do while roaming the savanna of the East African Rift that today, for $1 million, you can get a Homo sapiens to do. So potentially there is no contradiction between the Darwinists and the scientists quoted in the New York Times article.]

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Peter van den Hamer, a Dutch physicist, has written a very interesting four-section (see the navigation buttons at the top) article looking at DxOMark’s sensor tests. This independent analysis indicates that the DxO guys are doing a pretty good job. My big Canon system, sadly, ends up in the “losers” category along with medium-format sensors. Nikon, Sony, and other users of the Sony sensors are crushing everyone else. van den Hamer notes that Olympus is beginning to close the gap. What he didn’t say is that they did this by buying sensors from… Sony (source).

[Separately, DxOMark has tested a new Nikon D5200 APS-C (smallish) sensor camera and the result was a 14 f-stop dynamic range (Canon SLRs manage between 11 and 12). What’s unusual about this test is that the sensor is made by Toshiba. So now there are at least two sensor manufacturers that can easily outperform anything that Canon makes in-house. As DxO says in their conclusion: “The new sensors comfortably out-perform the current Canon offerings in practically every metric.”]

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