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Automobile sales in the U.S. are down 35 percent for December 2008 compared to December 2007. My conclusion is that the economy is in surprisingly good shape. Why? There is hardly a single person in the U.S. who actually needs a new car. Cars have become so durable that the easiest purchase to defer is a new car. A neighbor of mine is selling a 1997 Chrysler minivan. It has 125,000 miles on it, works perfectly, and looks almost new because it lives in a garage. He doesn’t trust it for long highway trips anymore. The Blue Book value of this car is $3000 for a private party transaction, $1625 for a trade-in. It would surely be nicer to have a brand new version of this same van (about $23,000 invoice, which presumably is the maximum you’d ever have to pay), but there would be no shame or inconvenience in driving this 12-year-old minivan.

The population growth rate of the U.S. is about 0.9 percent, so we might expect about 2.5 million cars to be sold as a consequence of newly licensed drivers (there are 250 million registered cars on our roads). There are roughly 6 million car accidents every year in the U.S. If we assume that the car is destroyed in 3 million of those, we would expect another 3 million sales due to accidents. That’s an annual sales rate of 5.5 million. In fact, sales are running at a rate of closer to 10 million, which means that 4.5 million cars are being sold as luxury splurges. That doesn’t sound like a depression yet.

[January 6 Update: The New York Times has an article today on the fact that cars have gone from an average of 6 years old to an average of 9 years old.]

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The news today describes the withdrawal of Bill Richardson from the job of Secretary of Commerce. None of the articles point out that the guy has never had a job outside of government (wikipedia). Does it make sense to have someone running Commerce who has never had any experience of trying to do any sort of business? As private industry continues to shed jobs and government continues to grow, one might argue that in the long run all U.S. jobs will be government or government contracting, but we’re not there yet. As a taxpayer, I get a bit nervous when I see the entire government run by people who’ve never been net payers of taxes (of course government workers do pay income tax, but their tax-funded salaries are larger than their tax payments, so on balance they are net recipients of tax dollars).

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Title pretty much says it all… “Obese Patients Necessitate Bigger Plane For Aussie Flying Doctor Service”

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The newspapers are filled with stories about the latest battle in the Arab-Israeli war, which started in 1948 but somehow is presented in our media as a fresh conflict. Hamas is described as a terrorist organization that has somehow occupied various buildings and rocket-launching sites throughout Gaza. In fact, Hamas is the legitimately elected government of all of the Palestinians, having won 76 out of 132 seats in a 2006 election (the Fatah party won only 43), as its Wikipedia article explains. Despite a military conflict with Fatah in 2007 (wikipedia), which resulted in the loss of power in the West Bank, Hamas supposedly remains the popular choice of the average Palestinian and overwhelming the choice of Gazans when it comes to political representation.

We don’t have to like what Hamas advocates or Hamas’s army does, but we should have the courage to accept their authority to speak and act for the Palestinians.

[Hamas is actually delivering on its campaign promises, which is more than most of us Americans can say for our politicians. Hamas promises in its charter to “raise the banner of Allah over every inch of Palestine” and to fight against Jews (they can’t be fighting against the state of Israel because they don’t recognize the existence of the state of Israel and certainly they aren’t fighting against the 20 percent of Israelis who are Arab).]

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The New Yorker magazine ran an interesting article in January 2007 about Michael F. Bennet and the Denver Public Schools. Bennet was recently named the new U.S. senator from Colorado, so the article is timely again.

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… you get to keep selling mortgages that are guaranteed by the federal government (and that probably won’t ever get repaid). This from a November 19, 2008 Business Week story: “FHA-Backed Loans: The New Subprime.”

As the government gets ever bigger, there will be more and more situations in which gains are privatized and losses are socialized (paid by us taxpayers). The real question is why anyone starts a business that does not tap into federal guarantees of one sort or another. What kind of fool would take the risk of failure?

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At a New Year’s party today, I sat between a Harvard administrator and one of Harvard’s brightest faculty stars. They were discussing a recent faculty meeting at which the president and dean failed to inspire them with a bright vision of the future. I said that they shouldn’t expect inspiration from bureaucrats at Ivy League schools. By dint of their limitless wealth, these schools will always be at the top of the heap regardless of what the bureaucrats do. The innovations will come from scrappy new schools such as University of Phoenix, which figured out new ways to deliver face-to-face and online education such that hundreds of thousands of people were able to earn degrees that would otherwise have entailed huge sacrifices of schedule, calendar time, and money. There was no reason for a school like Harvard to deliver education any differently than it was delivered 350 years ago, i.e., a lecture hall, a blackboard, a bunch of physically-present students, and a library with physical books.

The Harvard professor objected “But there is a lot of great innovation in education going on at Harvard right now.” My ears perked up. Were they going to do something with Internet-supported cooperative work? With using teleconferencing to collaborate with universities in China and India? Maybe the minimal step of capturing lectures on video so that students could review them later? None of the above, as it turned out. “We’re putting more art projects into the curriculum and we’re going to curate some existing campus spaces as contemporary art galleries.”

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The death of our economy and other news seems to have eclipsed the Darfur story in the daily papers. The latest New Yorker magazine has a very interesting article on the day-to-day life of U.N. employees working with refugees in Chad. Definitely easier to read the article than to head over there and see what it is like first-hand…

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My Amazon Kindle is just slightly past its one year anniversary and showing signs of very ill health. Half of the pixels on the screen are stuck following a light knock. I called Amazon and they’re happy to fix it… for $180 plus $7 in shipping (free if you’re a Prime member). The Kindle is more fragile than a laptop computer but less likely to be pampered given that you use it in all the situations where you’d use a book.

I may have to rethink my enthusiasm for the electronic book. Realistically the way that people handle books, the Kindle is not going to last more than one year. That means you’re spending $360 for the initial purchase and $187 every year for hardware repairs. Some of the Kindle editions of books are edging their way up towards $20 (see this Naipaul biography, for example). Suppose that you read one book every two weeks, or 25 books per year…

Kindle: $250 per year for hardware (spreading the cost of the initial Kindle purchase a bit) plus $312 for books at $12.50 per book = $562 per year. Good for individual travel and treadmill usage; bad for having to worry about forgetting it somewhere; bad for taking on vacation with family due to difficulty of sharing; terrible for illustrations and photos.

Paper: 25 books at $15 per book = $375 per year. Probably 50 percent of those books can be recycled into gifts, so the true cost is closer to $200 per year (assuming you need to buy gifts for friends and family periodically). Heavy for long trips; awkward for treadmill usage; good for carefree life (risk of forgetting in coffee shop limited to $15); great for sharing; great for illustrations and photos.

Library: free! Great for Great Depression 2.0.

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The Case Shiller Housing Index was down 18 percent between October 2007 and October 2008 (source). Boston was down only 6 percent. Should we celebrate Yankee ingenuity and work ethic? We did almost as well as Charlotte, North Carolina (-4.4%), which has a favorable business environment and very strong job creation.

I am more inclined to credit the fact that it is almost impossible to build a house in Boston. Most of the land close to the city center is already occupied by a wreck of an old structure. Due to zoning regulations, that structure usually can’t be torn down and rebuilt. The old structure is too big for its lot under the law, but the city won’t force a tear-down. Once torn down, however, the lot is subject to current zoning law and you’d be lucky to put up a dollhouse in place of the old 4500 square foot three-family. That is assuming you had the money and patience to work through a year or two of historical, planning, and zoning board meetings. Once you get your approval you’ll find that construction costs per square foot here are close to double what you’d pay in parts of the country where houses are routinely built. Should you be forced by zoning laws to rehab an old structure rather than start from scratch, the costs can go up even more. An old wreck of a house in Boston is thus worth a lot more than an old wreck in Atlanta, but mostly because it is easy and cheap to build a nice new house in Atlanta.

A Boston Globe story, subtitled “Boston lags others in adding homes”, adds a bit of weight to this theory. There are ever-fewer jobs in the Boston area, but the housing stock, mostly made out of wood, is deteriorating at least as fast as the job market. Those folks who have high paying jobs therefore compete intensely for the few nice houses in nice neighborhoods.

Given the energy-intensive nature of life in New England, with its cruel winters and increasingly hot summers, it would be nice if the zoning and planning process could be streamlined to allow the construction of double-walled German-style houses, built starting in the early 1990s but finally entering American consciousness in 2008 (nytimes story). Perhaps we need a state law that says anyone wanted to tear down a drafty old New England wreck of a house and rebuild a German-style house-within-a-house can do it without local approval as long as it is within 15 percent of the same above-ground exterior volume as the old house. That would create a lot of jobs here in Massachusetts and a local industry with expertise that could be marketed outside of the state.

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