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I’m wondering if Cash for Clunkers will be remembered as a turning point for the American people. We already spent roughly $100 billion of taxpayer money on the obsolete technology of 3500 lb. cars made by uncompetitive companies, happily ignorant of the fact that the world will be driving cars more like the Tata Nano (March 27 post; March 23 post). Could we really have spent enough money to fund 5000 Googles on GM and Chrysler? Yes, but the sum is so vast that human minds can’t contemplate the scale of the spending.

Cash for Clunkers has the following elements of spectacle:

• Americans destroying perfectly functional cars
• Americans whose skills are uncompetitive in the global marketplace driving around in fancy new cars

Somewhere in China and India they must be having a good laugh.

The deeper issues are more troubling. Cash for Clunkers only makes sense if we believe that our #1 problem is that we don’t drive sufficiently fancy cars.

Will the program save energy? Let’s leave aside the obvious waste of destroying a working car here, building a new one in Korea, and shipping it across the Pacific. Consider that a person who has a car worth $4500 has a limited budget for gasoline. If you give him a car that uses half as much gas per mile driven, he may simply drive twice as many miles. One of America’s acknowledged #1 problems is urban traffic congestion. We’ve come up with a program to make it a lot worse. A guy who would have carpooled to save on gas, ridden the bus, bicycled, or found a way to avoid the trip is now clogging the highways in his new Toyota.

Will the program help less fortunate Americans? Consider a guy who has been foreclosed out of his unaffordable mortgage. He has a cheap apartment and a paid-for car that isn’t pretty but gets him to work. If he loses his job he can move in with his mom and not worry about debt. After Cash for Clunkers, the same guy has a new car that cost 10X as much as a Tata Nano and a consequently crushing car loan obligation through 2014.

What else could we have done with the money? 37 percent of Americans don’t have broadband Internet at home (source). If we spent the Cash for Clunkers money on Let’s Try to Catch up with Korea (95 percent of households with broadband, typically much faster than ours (one source)) a lot of Americans might not have needed to make so many trips in their cars because (1) they could work from home, (2) they could shop from home, (3) they could get information from home, (4) they could find out, from home, that some place they were planning to go was in fact closed.

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We tend to think of America as an economically free country (#6 rank in one study), but with the proposed health care reform going through Congress it is remarkable how many laws an employer can break by employing his or her fellow Americans.

Suppose that you set up a company and hire 10 childhood friends. You don’t want to skim anything from their paychecks, and your wife has a fat government job, so you decide not to take anything out for yourself. Out of the goodness of your heart you’re going to pay for the office space and do the administrative legwork. When a customer pays, you’ll divide up the check into 10 portions and distribute it immediately to your employees. The employees are getting the absolute maximum long-term pay that they could under this arrangement, taking home 100 percent of the revenue from customers.

What laws are you breaking? At least the following:

1. you’re not paying for unemployment insurance
2. you’re not withholding federal income tax
3. you’re not withholding state income tax
4. you’re not paying worker’s compensation insurance
5. you’re not paying the employer’s share of Social Security and Medicare taxes
6. you’re paying people with a 1099 instead of a W2
7. though you went to elementary school with these folks, know their mothers, and know for a fact that they were born in the U.S., you didn’t verify to the government’s satisfaction that they were U.S. citizens
8. (the new one) you’re not arranging health insurance for your 10 friends

One would naively think that an employer who hands over 100 percent of revenue to employees was a kind and generous person, but it turns out that he or she is breaking more laws than a drug dealer.

[You might argue that it is possible for workers to obtain more than 100 percent of customer revenue, minus any materials costs. Government workers get paid without regard to revenue, productivity, achievement, etc. Some workers on Wall Street and at Detroit automakers obtained more than 100 percent of gross profits because they were able to supplement their compensation with tens of billions of taxpayer dollars. However, the average private sector workforce is limited by revenue from customers.]

[I had to delete a lot of comments from people who assumed that if the employer was not withholding income taxes that no income taxes were being paid. In this case, of course, the employees would pay their own income taxes on Schedule C of the Form 1040 (self-employment income). The 1099 filed by the employer would force the employees to report at least that much income on their Schedule C.]

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I chatted with the line guys on the ramp in the Wilmington, Delaware airport. The election of Joe Biden to Vice President has caused some changes to the airspace. There is a permanently restricted area of airspace to the NW of the airport, around Biden’s weekend house. The airport gets shut down every time Biden commutes home at taxpayer expense. What kind of plane does Biden, a tireless advocate of reduced carbon emissions (source), use for the 15-minute flight from D.C.? “Boeing 757”, was the report from the ramp, “You wonder how the government can criticize private companies for using light jets when they themselves ride solo in the back of a 757.”

[Note: the shortest version of the Boeing 757 can hold up to 234 passengers plus a crew of at least 7 (source).]

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I’m planning a flight today from Bedford, Massachusetts (KBED) to Wilmington, Delaware (KILG). Having a few minutes of waiting time in the car, I called Flight Service to ask for the outlook for tomorrow. Phone calls to Flight Service were formerly handled by FAA employees, somewhat overpaid government workers who were based in small regional offices such as Bridgeport, CT, Burlington, VT, and Bangor, ME. The FAA Flight Service folks were often pilots themselves and they always knew a lot about local weather and procedures. The service was paid for by taxes on fuel sold to privately operated aircraft.

A couple of years ago, the Feds decided that they could save money by outsourcing Flight Service to Lockheed-Martin, the company that turned a $30 million Eurocopter into the $400 million presidential VH-71 (subject of recent Congressional inquiry when people figured out that each of these helicopters will cost the taxpayer more than an Airbus A-380). Lockheed-Martin consolidated Flight Service into a handful of central facilities, staffed with people who met the FAA’s minimum requirements.

I explained to the briefer the reason for my phone call: I wanted to know by what time I had to leave in the morning to avoid the afternoon thunderstorms that I’d see in a public forecast and that are typical in the summer. He said “There aren’t any thunderstorms in the forecast.” I was surprised and asked him to check the terminal forecasts again. He confirmed that he was looking at the 8 pm terminal forecasts, which are good for 24 or 30 hours depending on the airport. I asked him to look at the airports in between BED and ILG. He repeated that there was nothing to worry about.

When I got home, I looked at the same data that he’d look at, from the Web-based duats.com (requires pilot certificate to register; ADDS offers similar data to anyone). Here’s what I found…

Area forecast for Eastern Massachusetts: outlook VFR becoming VFR rain showers thunderstorms with rainshowers 12 noon EDT (16Z).

Southeast NY: Outlook: VFR with rain showers thunderstorms with rainshowers.

Boston terminal forecast, 9a-1p: temporarily visibility 4 miles, rain showers, mist, broken cumulonimbus at 2,000 feet [note that a cumulonimbus cloud is a component of a thunderstorm]

JFK terminal forecast, 2pm: wind 190° at 14 knots gusting to 20 knots, visibility greater than 6 miles, scattered cumulonimbus at 8,000 feet, 25,000 feet broken

Wilmington, DE (ILG) terminal forecast, 2 pm: wind 180° at 12 knots, visibility greater than 6 miles, thunderstorms in the vicinity, broken cumulonimbus at 5,000 feet.

Government privatization usually results in the perpetuation of a monopoly (in this case Lockheed-Martin is the only company which a pilot can contact to use the services that his or her fuel taxes paid for) and it is very difficult to specify quality, as perceived by the customer, in a contract.

[A few weeks ago, I was flying into the dreaded Washington, D.C. ADIZ. If you don’t have a flight plan, a squawk code, radar contact, etc., they can roll the F16s and shoot down your little 4-seater. I decided that my flight plan from the Westminster VOR to Gaithersburg (about 10 minutes in the Cirrus) was too precious to entrust to DUATS, so called Flight Service and gave them the plan over the phone. As I got closer to D.C., the controllers searched and searched but never could find my flight plan. Fortunately, they were able to use their discretion and allowed me to proceed to Gaithersburg, but Lockheed-Martin’s failure could easily have forced me to land short of the D.C. ADIZ, file a new plan via phone or Web, and take off again, a significant waste of fuel, time, and money.]

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Using Google App Engine, a recent O’Reilly book by Charles Severance, is a very rare animal: a self-contained book on software development. An intelligent person who had never written a computer program could, without referring to other books, develop a very simple application running on Google’s servers. The book has been slammed by some nerd reviewers on amazon.com for being shallow and wasting time explaining what HTTP and HTML are, but these are precisely the things that I like about the book. The chapter on Python starts with a section titled “What is Programming?”

A person doesn’t have to devote his or her life to reading dozens of interlocking books. This 240-page book is sufficient for a satisfying introduction to the world of cloud nerds. If the reader wants to go deeper, the online docs for all of the subsystems described in the book are available.

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I recently attended a baby shower, something that I never thought that I would do unless I had first gone to Thailand for a sex change operation (cannot afford U.S. prices for elective surgery!). Apparently this is the style with modern/older mothers and there were at least 7 or 8 other guys there.

The situation was made more challenging to my fragile sense of masculinity by the fact that I offered to re-park a car at a neighbor’s house, in order to free up parking spaces for additional guests. The owner had left her purse in the car and the locks on the old Saab, along with everything else, seemed to have failed. I decided that I couldn’t leave the purse in the car. Thus did I find myself walking to a baby shower carrying a woman’s purse.

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Californians are scratching their heads trying to figure out why their government has run out of cash. Some blame the constitution. Some blame the governor. Some blame the lobbyists. Let’s run a few numbers.

The median wage of a California state employee is $66,000 (source). The median wage among all Californians (including those state workers) is just over $36,000. The state employee can retire with a full pension in his or her late 40s or early 50s, which essentially means that the taxpayers have to pay for double the number of state workers that are required to provide current services. In addition to salaries that are much higher than private sector equivalents, the state employee has health care and other benefits that by themselves may exceed the total compensation of a full-time private sector employee. The reasonable question to ask is not “How did they run out of cash?” but “How was this ever supposed to work?”

The picture is worse than the numbers would suggest. A lot of new Californians are working illegally. Their wages, which may be paid in cash, are less than $36,000 per year, and are not reflected in official statistics. Yet an immigrant who arrives to take a $10 per hour job still requires teachers for his children, policemen and firemen for his neighborhood, etc.

California has a tax burden of 10.5 percent of its citizens’ income, higher than the U.S. average of 9.7 percent (source). Due to the fact that California government has grown so much in the past few decades, its pension and health care payment obligations for retired state workers are going to skyrocket in the next 20-30 years. (The inefficient states of the Eastern U.S. were more or less equally inefficient in 1980 and had roughly the same population and size of government workforce.)

California could become solvent… if it can insure that everyone who moves to the state for the next 30 years is a medical doctor earning at least $150,000 per year from Medicare, Medicaid, and other out of state sources.

[Related: This guy calculates that, adjusted for inflation, California government now spends 3.54X as much per citizen as it did in 1970. It seems hard to believe, but I don’t have enough data to contradict it.

The federal government is not doing a whole lot better, according to this Congressional Budget Office posting. What keeps the Feds going is their ability to borrow and print money.]

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In January I posted a theory that the U.S. economy might not do anything more dramatic than slide sideways, which would look like a downward slide relative to other nations, more or less as the U.K. has done since World War II. There is no law that says we have to grow or crash. It has been six months since that post and the economic numbers remain depressing but not terrifying. GM is still in the news, having absorbed perhaps another $50 billion in taxpayer funds and hopelessly ill-equipped to compete with the Tata Nano or the electric cars coming out of China. The government continues to expand but few have noticed any great improvement in the quality or quantity of services delivered by the government. Any growth in GDP seems likely to be roughly matched by our 1 percent annual growth in population, which will result in a reasonably happy government, but a disappointed people. The government will be a happy due to a rising tax base. The people will be disappointed because increased population will bring congestion, rising real estate costs, and constant per-capita income that most likely will turn into a falling income for most Americans, given that a lot of forces tend to make the rich richer and the poor poorer.

How accurate does this assessment seem? Are you seeing evidence of a recovery in your neighborhood?

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The Supreme Court has spoken in Ricci v. Stefano, the New Haven firefighter’s case. An employer developed what it thought was a purely job-related exam and said that they would promote the people who did well on the test. The alternatives presumably would have been promotion based on seniority or popularity with supervisor (i.e., suckuptitude). When it transpired that some blacks and Hispanics whom the city had hoped to promote based on the exam failed to score well, the city tossed out the results. The Supreme Court has ordered the city to live by the test results and self-proclaimed advocates for blacks and Hispanics are broadcasting their displeasure.

Initially it seems reasonable that advocates for groups that did poorly on an exam would advocate against an exam culture. But thinking about it a bit more, I found myself surprised.

Suppose I am a member of Group A within society. The average manager thinks that members of Group A are incompetent and doesn’t want to hire anyone in Group A. Membership in Group A can be easily recognized in a face-to-face interview by skin color and therefore, unless nobody else has applied, no member of Group A is likely to get a job after a face-to-face interview.

An employer switches to using a written exam, graded by a computer program unaware of the group membership of test takers. The highest scoring test takers will be given jobs.

This should be a dream come true for me and the rest of Group A. To get a job or a promotion, all that I have to do is study for a written test. I don’t have to worry about my skin color anymore. If Group A has a particular dialect of English or funny accent that turns off employers, I am also freed from worry about how I speak.

If the belief is that Group A is being discriminated against because employers are prejudiced, one would think that any advocate for Group A would welcome a method of hiring or promoting that is blind to personal characteristics.

Suppose that all jobs in the U.S. were exam-based. We would not have had the election of 2004 in which John Kerry and George W. Bush competed for our top job. Neither of them did especially well on exams, as evidenced by their mediocre grades in college. Had ability to be President been judged by an impartial computer system rather than voters, it is unlikely that two white guys from Yale would have been the top contenders.

[Separately, has anyone seen any of the exam questions? A tremendous amount of journalistic ink has been spent on this lawsuit yet I have not seen any sample questions from the exam. Perhaps they were lifted from http://snltranscripts.jt.org/76/76rblackperspective.phtml, e.g.,

You have been invited over for cocktails by the officer of your trust fund. Cocktails begin at 4:30, but you must make an appearance at a 6:00 formal dinner at the Yacht Club. What do you do about dress?

A. Wear your blue-striped seersucker suit to cocktails and change into your tuxedo in the bathroom, apologizing to your host for the inconvenience.
B. Wear your tuxedo to cocktails, apologizing to your host for wearing a dinner jacket before 6:00 PM.
C. Walk to the subway at Columbus Circle and take the “A” Train uptown.”

Julian Bond, Black Perspective, Saturday Night Live, April 9, 1977]

[Update: The New York Times did a story on a Hispanic firefighter in New Haven who joined the lawsuit supporting exam-based promotion. He was unaware of his own score, though as it happens it was high enough to earn promotion. Last paragraph:

Gesturing toward his three young sons, Lieutenant Vargas explained why he had no regrets. “I want them to have a fair shake, to get a job on their merits and not because they’re Hispanic or they fill a quota,” he said. “What a lousy way to live.”

]

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Sometimes I like to listen to classical music on WGBH, one of our local NPR stations. For what seems like a large percentage of the days in the year, however, they interrupt the programming for 20 minutes per hour with annoying fund drives. How much of WGBH’s revenue comes from driving listeners insane/away? Their annual report says that in 2008, only 12 percent of the total budget was from individual donations. Let’s assume that half of this money comes from people who would have given via the Web or via mail solicitations. The total revenue from on-air fund drives is therefore only about 6 percent of total revenues.

This 6 percent does not come for free, though. During fund drives, the station has less air time in which to sell ads. The station has fewer listeners during fund drives, which reduces the amount that can be charged for an ad. Furthermore, companies might not want their ads to run while listeners are being annoyed. Ad revenue, referred to in the annual report as “corporate support”, is 17 percent of total revenue and let’s assume that it could grow to 18 or 19 percent without the fund drives. Now the station is irritating listeners for a net 4 percent revenue boost.

Even this 4 percent isn’t free. The station needs to hire people to run the pledge drives, speaking on the air, coordinating volunteers, buying pizza, negotiating with companies for products and services to give away to donors. WGBH’s IRS Form 990 reveals that the station spent 10 percent of its total revenue on fundraising. If we assume that one third of that went to on-air fund drives, the net revenue boost from interrupting programming to have fund drives is only 1 percent.

I.e., if the station could trim expenses by 1 percent it would not need to do a fund drive ever again.

Another way to look at this is that the station spent 10 percent of its budget on fundraising. It received 12 percent of its budget from individual donations. If it trimmed expenses by 2 percent, it could stop asking for money via direct mail, on-air, on the Web, etc.

Is there any fat to be trimmed? Back in 2006, according to the IRS Form 990 (available from guidestar.org), the company was paying 14 vice presidents between $200,000 and $300,000 per year in current and deferred compensation. Henry P. Becton, Jr., the president, helped himself to $350,000 per year. [Did they need to pay Becton $350,000 for fear that this hard-charging young executive would be hired away by a new station in Los Angeles? The guy was in his 60s and about to retire, but presumably the Trustees of this non-profit organization thought that the wisest use of donor money was to give Becton a big pay raise.] In this economy, giving these folks a 5 percent pay cut should not result in anyone leaving for a commercial TV station (all of which are making drastic salary and staff level cuts).

If you weren’t annoyed enough by WGBH’s pledge drives, keep in mind that (1) the station could eliminate all fundraising and suffer only a 2 percent net loss (because they spent so much on administration, mailing, etc. in trying to get the money), and (2) all of the net proceeds from individuals barely suffice to pay a handful of top executives who never get anywhere near a TV camera or audio mixing panel.

The preceding analysis is in some ways too optimistic about fund drives. On-air fund drives might have made sense in the early days of public radio. The only other way to reach listeners and potential donors was via expensive printed direct mail. Public radio stations did not sell advertising in the early days and therefore there was no immediate cash value to having a larger audience. Listeners had no MP3 players, no satellite radio, no Internet radio, and no podcasts. A crummy station had a monopoly at least on its little corner of the dial and was guaranteed at least some audience. In the 21st Century, however, a public radio station has new competition and new opportunities, e.g., reaching listeners on the other side of the country or planet. Via its Web site and email, the station can communicate with listeners and ask for money “out of band” in a way that does not reduce the value of its service. One wonders if the fund drive is simply a leftover that hasn’t been eliminated because non-profit managers aren’t nimble enough to adapt to a changed world. By reducing the audience size and running up admin costs at an organization where a lot of employees are paid over $200,000 year, the fund drive probably reduces profits.

I’m listening to CBC Classical right now, which is free of all commercials, free of fundraising solicitations, and streamed at a much higher audio quality than WGBH’s Internet feed.

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