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This is a one-year follow-up on my review of the book I.O.U. The author made or implied the following predictions:

• Canada would do well
• France and Germany would do reasonably well, due to their sensible financial systems and Germany’s focus on manufacturing
• Britain would be a disaster, with at least a shrinkage of 600,000 government workers and maybe a decade of pain

Here’s the section under the headline “Britain is doomed”:

Page 217: “Britain has half of the total European credit card debt. … We are all about to feel significantly poorer. That’s because we’re about to get the bill. … the recovery everyone is longing for is the point when we will get the bill. It’s when we recover that we will start to pay back the cost of what happened. Governments can’t begin to fix the holes in their own balance sheets–holes which get rapidly worse as tax revenues collapse and spending vooms upward–until the economy is growing again.”

Lanchester explains that the government budget problem is compounded by the fact that “the average British household owes 160 percent of its annual income.” He predicts that British government payrolls will shrink by at least the 600,000 workers that the government has added in the “last few years” (a government that shrinks in size is almost unprecedented in modern history and Lanchester does not cite any examples).

How are Lanchester’s predictions working out, a year later (probably closer to two years later from his point of view)?

Canada is growing steadily with about 7 percent unemployment (these are the easy numbers to find, but also easy for governments to cook; I would prefer to know the percentage of working-age Canadians who are employed)

France seems to be doing okay. Germany grew 3.6 percent in 2010 and the German unemployment rate is lower than at any time since 1990 (source).

The United Kingdom is doing comparatively poor, much as Lanchester predicted, with a GDP 1.7 percent higher at the end of 2010 compared to 2009 (source) and the unprecedented government shrinkage that Lanchester forecast indeed came to pass, with cuts of “almost half a million jobs” (source) planned.

Lanchester is a novelist, but his predictions seem to have worked out better than most economists’!

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Folks: I’ve drafted a book review of James Wolfensohn’s autobiography, A Global Life, and would appreciate comments/corrections.

Thanks in advance.

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Here’s an interesting graphic from The Atlantic attempting to show how the U.S. changed between December 2007 and June 2009.

At first I thought that the graphics were going to communicate much more than the raw numbers, but as I looked closer it occurred to me that the simple numbers are easier to read, e.g., “number of federal employees grew 13.6 percent to 2.06 million”. How does having two bars and a pyramid (lower center) make this clearer? The graphics would be useful if they helped one compare the numbers to each other or to additional numbers, but each mini-graphic stands alone and often is not comparable to anything else nearby.

What do folks think about this attempt at graphical communication?

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I was reading my favorite intellectual journal the other day, i.e., Delta Sky magazine (free in every seatback pocket), and chanced upon an editorial by Richard Anderson, the CEO of Delta. Anderson notes that “average price of your ticket (adjusted for inflation) today costs about half of what it did prior to deregulation.” Considering that the airlines are plagued by unions and high oil prices, this is either an impressive tribute to the brilliance of managers such as Anderson or evidence of spectacular inefficiency during the regulated years.

With the massive increase in passengers going through airports and the increase in the average size of an airplane, you’d think that the cost of getting a passenger through an airport would have gone down. Anderson says it isn’t so: “Since the 1970s, the taxes and fees airline customers must pay has nearly tripled, and Congress again is proposing an increase in passenger facility charges from the current $4.50 to $7 per flight segment. This increase means airline customers would pay an additional $2 billion in taxes per year–an average of $112 per trip for a family of four.”

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As a shareholder in U.S. public companies, mostly through Vanguard index funds, I usually find myself asking “Why am I paying a manager $50 million per year to earn an average (or below average) return on investment? Couldn’t they have found someone mediocre for $1 million/year and given us the $49 million remainder as a dividend?”

The news about Ford making a fat profit for 2010, however, prompts me to issue a public thank-you to all of their workers.

What makes Ford special? The U.S. government handed out nearly $100 billion in tax dollars to Ford’s competitors. How many enterprises could survive this? I don’t think our helicopter school could survive if the place across the hall were given $100 billion.

So.. from a shareholder: thanks, guys and gals!

[To forestall comments that would take away from the spirit of the thank-you: yes, I am aware that Ford had some help from the spectacular incompetence of the management at Chrysler (e.g., http://en.wikipedia.org/wiki/Robert_Nardelli , paid $500 million by Home Depot shareholders while the company stagnated, then he moved over to dig a deeper hole for Chrysler) and GM (see this September 2009 post about the pensions that GM managers agreed to provide). However, I don’t think that should stop shareholders from thanking the Ford team.]

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Teaching our three-day intensive course in RDBMS and SQL development at MIT made me reflect on the wisdom of the government using tax dollars to pay people for 99 weeks (two years!) to stay home and play Xbox or watch TV while waiting for employers to return their calls. The standard 26 weeks of unemployment makes sense to me. People paid for the insurance with wage deductions and it might take 26 weeks to move to a new city or state, work one’s network of friends and relatives, etc. But the subsequent 1.5 years don’t make sense to me given what a human ought to be able to learn in that period of time.

In three days we took people, admittedly many of them very bright, from zero knowledge of RDBMS to basic competency in SQL programming. They were also able to modify, recompile, and test Android applications that pull information from a Web-based RDBMS. Many of the students had very limited programming experience and many were not MIT-affiliated, so it is not as though we took MIT computer nerds and made them slightly more nerdy.

Let’s try to come up a list of things that a person, effectively taught, could do in 99 weeks. Here’s a start:

• earn most or all of a bachelor’s degree if done at an efficient school such as University of Phoenix where courses are self-paced and/or in session all year rather than the lazy half-the-year calendar of a legacy university
• earn an MBA (1 year at a modern school; 2 years at a legacy school)
• become a competent video editor in Final Cut or Adobe Premiere (two weeks?)
• become a competent photo editor in Adobe Photoshop or The Gimp (two weeks?)
• develop reasonably fluency in a foreign language, even without an instructor, using tools such as RosettaStone (one year, possibly including a trip to Guatemala or China or wherever)
• start and finish an aviation maintenance degree and FAA certification (typically about 1.5 years)
• learn heavy equipment operation
• complete almost any trade school, e.g., plumbing or electrician
• go from zero computer knowledge to being a Microsoft Certified Systems Engineer or a Cisco network engineer

It seems strange to pay someone for 99 weeks and hope that somehow the employers that didn’t want them when they were fresh out of work would somehow want them after two years of idleness.

What about the following modifications to the system:

• for people who live in states with an unemployment rate higher than average (see http://www.bls.gov/web/laus/laumstrk.htm for the rates), offer a lump sum at the end of 12 weeks to assist the person in moving to a state with a lower-than-average rate
• for people who’ve been unemployed for 12 weeks, simply pay for a year of education in programs with proven records of skills-building (I guess you measure by how many finished and were able to get jobs)

I have heard that there are various government training subsidies available, but none seem to be as well funded as the river of money that is going into the 99-weeks-of-Xbox system.

What’s wrong with my thinking? Is the 99-weeks-of-Xbox system that Congress created more sensible than it seems?

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All of the higher-ed newspapers are talking about Academically Adrift. Inside this good summary of the book is my favorite finding: students who majored in “communications” showed among the smallest improvement in writing skills during their four years in an American college.

Related: http://philip.greenspun.com/blog/2010/04/11/value-of-a-u-s-college-degree-in-engineering-or-science-for-understanding-the-real-world/ and http://philip.greenspun.com/teaching/universities-and-economic-growth

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Barack Obama has been talking recently about lifting corners of the regulatory blanket that smothers American business (nytimes). Let’s see how it would work in aviation.

Due to a train crash that was blamed on a marijuana-smoking driver, the federal government in 1991 imposed mandatory drug and alcohol testing requirements on transportation workers. Though no commercial airplane crash has ever been attributed to illegal drugs, every airline in the U.S. is required to do the following:

• train all managers to recognize when employees are on drugs and to learn the cool street names for cocaine, PCP, etc.
• train all employees to learn about how their employer might catch them via a random drug test
• request records from previous employers to make sure that the potential employee hadn’t tested positive in the past
• send the prospective employee for an initial drug screening
• surprise the employee every now and then and drag him or her off for an on-the-job drug test, then argue about the results and maybe send the employee into rehab or tell him to lay off the poppy-seed cake or whatever

[spelled out in detail at http://www.dot.gov/ost/dapc/NEW_DOCS/part40.html ]

For United Airlines, this isn’t an enormous cost and, since no stoner pilots have crashed Boeing 757s, the system is obviously working (let’s ignore the fact that no stoner pilots crashed Boeing 757s prior to 1991 either).*

How does it work for Joe Barnstormer, who gives biplane rides from underneath a shade tree next to a grass runway? Whose passengers meet Joe face to face prior to flight and could decide for themselves whether or not he inspires confidence? The government’s rules for Joe are … exactly the same as for United Airlines.

• Joe must take U.S. DOT-approved training to learn how to recognize when his employees (in this case, just himself) are on drugs.
• Joe must take U.S. DOT-approved training to learn how to recognize when his boss (i.e., himself) can catch him with a surprise drug test.
• Joe must send letters to his former employers to see if he failed any of the previous drug tests that he took
• Before he hires himself, Joe must take a pre-employment drug test to see if he has fooled his potential new employer (himself) into thinking that he is clean.
• Joe must pay a fee to a random selection service that will email him when it is time for a drug test. When the email shows up, Joe is supposed to wait for the next convenient time that Joe shows up to work, then surprise himself by sending himself to the drug testing lab.

Could any politician or bureaucrat revisit this rule? How would they respond to “Isn’t an American who takes a biplane ride entitled to the same level of protection from drug abuse as an American who buys a ticket on United?”

The only argument against imposing the same regulations on a small business as on a multi-national are that the cost will put the small company at a disadvantage or push it into insolvency. Government almost by definition does not consider the costs it imposes on individuals and companies. The big companies with lobbying budgets may not object to regulations that are onerous for their small competitors to comply with.

Almost every government regulation makes at least as much sense as having the single-pilot sightseeing operator surprise himself with a random drug test. It sounded sensible when it was drafted and presumably still sounds like something that keeps the public safe. How could we ever give it up?

*[The logic of the airlines being kept safe by the complex drug testing regulation is similar to that of the man who goes into a psychiatrist’s office with a duck on his head. Psychiatrist: “Why do you keep a duck on your head?” Man: “It keeps the lions away.” Psychiatrist: “But there are no lions in Manhattan.” Man: “See! It works!”]

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A reader sent me an article from the Boston Globe concerning a proposal to tweak pensions for government workers in Massachusetts. First, the article notes that taxpayers are currently on the hook for $20 billion in “unfunded costs”. That’s over $12,000 for a family of four and will grow if the pension fund does not obtain the 8 percent annual investment returns forecasted or if medical technology improves and retired workers live longer (an MBTA worker can retire at age 41 with a full pension, fire, police, and prison workers at 45, so our biotech crystal ball has to be accurate out to approximately the year 2070).

The new system preserves the ability of government workers to boost their pension by working overtime towards the end of their career: “pension benefits would be calculated based on their highest earnings over a five-year period, instead of three years.” (i.e., they’ll have to do a lot of overtime during for five years rather than three if they want their pension to be higher than their old base salary)

My personal favorite part of the proposal:

Another, known as “spiking,’’ involves employees nearing retirement who are suddenly given a new job title with a dramatic boost in salary. Under Patrick’s plan, they would have to prove that their promotions were warranted.

As there are no productivity or achievement standards for government workers, how would it ever be established that a promotion was “unwarranted”?

More: press release from the politicians (notably does not contain information on the existing underfunding and how much taxpayers will have to cough up); also check out http://www.nytimes.com/interactive/2011/01/23/magazine/rockford.html, which has portraits and audio interviews of people in Rockford, Illinois. They are trying to figure out how $10/hour ($20,000/year) private sector workers can support the $52-80,000/year public sector workers (whose total compensation is almost certainly over $100,000/year when the value of pension promises and other benefits are considered).

Reminder: this video of a firefighter talking about his lifestyle and compensation is always worth watching just before paying a tax bill.

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Email from a friend:

“You need to tiger mother Ollie.

One funny aspect of Chaser’s amazing qualities, is that that he’s learned to to distinguish verbs and objects, but he mostly can’t retrieve a ball without a lot of begging and cajoling from his owner..

There’s so much room for Ollie to surpass him!”

“to tiger mother” is apparently the English language’s latest verb. Thank you, Amy Chua.

[Chaser is the border collie in http://www.newscientist.com/article/mg20827921.900 and in a recent New York Times piece.]

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