Philip Greenspun’s Weblog

The Minnesota shutdown highlights the poor quality of journalism in the U.S.

I haven’t seen any newspaper article that provides the following information:

• how much tax revenue does Minnesota raise compared to other states? (the governor wanted higher taxes)
• how does the $2.5-3 billion/year budget gap that caused the shutdown relate in size to the total state budget? (are we arguing about 1% , 10%, or 50%?)

These numbers aren’t that hard to get. http://www.taxfoundation.org/research/topic/37.html indicates, for example, that Minnesota rakes off 10.3 percent of residents’ income, which is above the U.S. average. Tax rates are among the highest in the nation in many categories, e.g., 3rd highest for corporate income tax (consistent with their overall business environment being 43rd in the nation; neighboring South Dakota is #1). http://www.mmb.state.mn.us/budget shows that the total revenue for the state is about $2.3 billion per month, so the budget gap is about 10 percent of total spending.

The articles on the consequences of the shutdown are interesting because they show just how much paperwork and hassle the government creates, e.g., around the distribution and sale of alcohol. (see this Atlantic article).

Finally the proposed restart of Minnesota state government is interesting because they’re doing it with an Enron-style accounting scam. Instead of raising taxes or cutting spending, the politicians are going to fix this year’s numbers by delaying writing checks to school districts and pulling (tobacco lawsuit shake-down) revenue in from future years.

Minnesota, like Greece, provides evidence that democracy depends on economic growth. To ensure their own reelection, politicians ladle out so many promises to cronies and interest groups that if the economy doesn’t grow as forecast the choice becomes bankruptcy/default or such high taxes that businesses flee, taking the jobs with them, and the most capable workers emigrate.

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I bought an iPad 2 as a gift for a woman who has never been a successful personal computer user, beyond launching a web browser. I figured it would be dead-simple to set up, like an Amazon Kindle or Android phone/tablet and she could be freed from ever having to use a desktop operating system again. As soon as she unpacked it, though, she called me and said “I can’t do anything with this. It just says ‘iTunes’.” Of course, the device shipped with no manual because it is supposed to be idiot-proof. So I downloaded the 200-page user guide from the Apple web site and discovered that the iPad seems to depend on the owner also having a PC and being savvy enough to download and install additional software on that PC (i.e., iTunes). Can this really be the case or am I missing something? All that she wants to do is connect to WiFi and launch a web browser. Can’t the iPad do that out of the box?

How is the iPad the next generation of computing if it needs to lean on the technology of the 1970s (the PC)? Wouldn’t it be more accurate to call the iPad a PC peripheral?

[And does the iPad require an ongoing periodic connection to a PC in order to get software updates? Or can it get them “over the air” like a Kindle or Android device?]

[Update: the gift recipient (Harvard graduate, as it happens, with more than 10 years of experience using Windows) spent 45 minutes trying to download and install iTunes on her Windows XP laptop. She failed completely and seemed not to understand that the download process results in a program file being transferred to her computer and that, afterwards, the program would have to be run in order to complete the installation. The word “installer” was incomprehensible to her. I guess this shows that the Android/iOS one-step process of installing applications is superior for naive users than the two-step Mac OS/Windows process.]

[Update 2: the gift recipient was able to get a recent high school graduate to come over and assist with the installation of iTunes. However, they found that they could not sync the PC with the iPad unless they held the connector into the edge of the iPad. There seems to be some kind of mechanical problem either with the cable or the iPad itself. The two of them were able to get the iPad onto a WiFi network and connected to a legacy AOL email account, so now it can function as a Web browser or email reader.]

[Update 3: While the iPad debacle was unfolding a non-tech friend decided to purchase his first smart phone. He went to the Verizon store at the Burlington Mall and, before leaving the store, had his new Android phone (Samsung Droid Charge, with OLED screen and 4G LTE data; we’ll see what kind of battery life he gets!) set up with his email and was happily replying to messages.]

[Update 4: I took a tour around the iPad Web site, e.g., http://www.apple.com/ipad/features/ ; nowhere does it show the iPad connected to the dreaded legacy systems. The only mention of connecting the iPad to a traditional computer is at the bottom of http://www.apple.com/ipad/ios4/ and then it is only in the context of updating software.]

[Update 5 (about 5 days after delivery): The new iPad user was able to get to the Facebook web site. However, she was not able to log in because she said “I could not get the keyboard to appear at the same time that it was asking me for my email address and password.” She spent about 30 minutes trying to figure out how to get into Facebook and then gave up, reporting great frustration. “I can’t figure out how to get any of these things to go away,” she noted. “On Windows there is a line of commands across the top, but on the iPad there are usually only a few options.”]

[10-day update: The iPad user does not know what an “app” is and cannot distinguish between trying to connect to Facebook via the Web versus via through a “Facebook app”. It is impossible to explain the difference over the phone.]

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The June/July 2011 issue of Air Line Pilot, the official journal of ALPA, the largest U.S. airline pilot’s union, arrived in the mail. It contains a review of the preceding decade. Here are some interesting numbers:

• the peak of U.S. airline employment was in 2000, with more than 650,000 Americans working for an airline. “U.S. airlines have cut nearly 150,000 employees since the peak,” based on government statistics, leaving just over 500,000 employed
• the peak of U.S. airline pilot employment was in 2005, with 76,078 pilots. The numbers are down slightly since then, with 74,552 pilots working in 2010. There has been a gradual shift from major airlines to regional.
• passenger traffic in the U.S. peaked in 2007 and the current traffic levels are about 6 percent below the peak
• ticket prices during the decade, adjusted for inflation, went down 21 percent (they were flat in nominal terms; compared to a 117 percent rise in college tuition, an 82 percent rise in the cost of eggs, and a 46 percent rise in the cost of a movie ticket)
• jet fuel prices rose an average of 10 percent per year during the decade
• revenues for U.S. cargo-only airlines, such as UPS and Fedex, grew from $20 billion in 2001 to more than $30 billion in 2010 (down from a 2008 peak of more than $35 billion); these numbers are not adjusted for inflation and the 2001 number would be about $24.6 billion in 2010 dollars
• the last supersonic passenger flight, an Air France Concorde from Paris to New York, took place in 2003
• more than 30 percent of U.S. airlines filed for Chapter 11 bankruptcy protection during the decade (i.e., 30 percent of airline shareholders were wiped out)
• a lot of new jobs for pilots will be with “state-owned airlines”; under the headline “Rise of the Middle Eastern Airlines”, it is forecast that “By 2029, 68 percent of air traffic volume will be from the emerging economies in such countries and regions as Asia, Brazil, India, and the Middle East.”

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Listening to a government-sponsored radio news broadcast this morning, I heard Barack Obama talking about his plans for closing up the nation’s larger-than-Greece’s federal budget deficit (don’t forget that the states are also running deficits by underfunding public employee pensions) by eliminating tax breaks for corporate jet owners. I did a little research and found out that he was talking about a regulation that allows new aircraft to be depreciated more rapidly than the 7-year standard. This article explains the issue reasonably clearly. The depreciation schedule tweak was put in as a favor to aircraft manufacturers and their mostly unionized work forces. It makes new aircraft relatively more attractive than used aircraft. As U.S. companies such as Cessna and Bell lose market share to more innovative foreign manufacturers, however, many of the benefits are going to foreign or foreign-owned aircraft makers.

As I wrote in my economic recovery plan for the U.S., I’m personally in favor of allowing businesses to depreciate capital goods on whatever schedule makes sense for them. It avoids the bizarre situation of a company being cashflow-negative and still owing tax. President Obama made it sound as though the change would raise a lot of revenue for the federal government. The reality is that changing the rules wouldn’t raise an additional dime from companies that already own planes. Nor would the rule change change the total amount that a company can deduct for an aircraft used for business. Tweaking the rules means that the federal government gets tax revenue possibly a little sooner or later than it would have otherwise. With interest rates down around 1.5 percent for 5-year Treasuries, the value to the Feds of getting the money sooner is low. The final problem with Obama’s plan to raise big $$ via this rule tweak is that aircraft sales in the U.S. are very slow. Since the U.S. economy isn’t growing and aircraft last a long time, there is little practical need for a lot of new corporate jets.

Obama’s plan would help accountants and tax lawyers, but it is hard to see how it would have a significant effect on federal tax revenues. Furthermore, the way that he phrased it in his speech was misleading to citizens who would have concluded that somehow the federal government was ladling out cash for corporate jets in the same way that it does for energy efficiency, electric cars, ethanol, etc. Obama proposed to close one of the world’s largest government spending gaps by changing the depreciation schedule on a small and shrinking class of capital equipment purchases.

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I’ve been making the rounds of the ice cream shops on Martha’s Vineyard this week and my cone is usually delivered by a 20-25-year-old with a Polish accent. This did not strike me as odd a few years ago when the U.S. economy was booming. Jobs on the Vineyard are plentiful during the summer, but affordable housing is not very comfortable. It was primarily foreigners who wanted to come here, work 12 hours per day, every day, sleep in a bunkhouse and bank a lot of money before returning home at the end of the summer (there is some sort of work experience visa program that was/is commonly used for these young people; it may be that they are studying hospitality in a school back in Europe). With millions of unemployed Americans, however, it seems odd to me that the summer of 2011 would still be one in which the employers of the Vineyard would look to foreigners.

Update: I did a little more research among the managers and employees of shops in Vineyard Haven. One shop owner said that she thought that the work ethic of young Americans was, on average, inferior to that of the foreigners who were motivated to pack up and cross the ocean. The cost of the temporary foreign workers was about the same as hiring an American, but the foreigners were more effective. A couple of Russian students (from Vladivostok!) working in an ice cream shop said that they were being well paid but mostly valued the opportunity to improve their English. I also found legal workers from Turkey and a couple of recently-arrived girls from the Czech Republic who were looking for cash jobs.

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We posted an ad for a helicopter instructor to work at East Coast Aero Club here in Boston. 34 people have applied so far. As our only interest is in how effective and safety-conscious the instructor will prove to be, we didn’t ask any of the applicants to indicate their race or sex. On the other hand, just from the first names we’ve been able to infer the male/female ratio. Thus far… 33:1.

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Various experts have been saying that Greece’s problems would be mostly solved if the country had its own currency. The Greek population is just over 11 million, somewhere between that of the Chicago and Los Angeles metropolitan area populations. With its own currency, Greece could devalue its debts and pension obligations in real terms.

If that is true for Greece, why not for U.S. states with similar or larger populations? Just like Greece, U.S. states have big debt obligations and they also run massive budget deficits (though this is mostly in the form of unfunded pension obligations and therefore hidden). If Michigan devalued it would be a more attractive place to invest. Workers could continue to earn their former salaries in “Wolverine Bucks”, but the cost relative to goods and services on the world market would be much less. If California devalued, its state pension obligations would be greatly reduced. The state might owe a 51-year-old retired fire chief $241,000 per year or approximately 2410 barrels of oil, but if the state issued Grizzly Bucks instead, the obligation could be satisfied with just a few hundred barrels of oil.

Conversely, if we think it would not be helpful for a U.S. state with a population of 11 million to have its own currency, why do we think that it would be helpful for Greece?

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Unemployed Americans will be cheered to see Practice Fusion, a free Web-based electronic medical record system. Physicians who adopt the free system will get $44,000 in cash from the federal government (i.e., taxpayer funds). http://www.bls.gov/oco/ocos074.htm#earnings notes that the folks getting the free $44,000 have earnings “among the highest of any occupation” (median of $186,044 for primary care docs; $339,738 median for specialists).=

http://www.practicefusion.com/pages/HITECH_healthcare_stimulus.html explains “On February 17, 2009, President Obama signed the American Reinvestment and Recovery Act (ARRA). Under the economic stimulus plan, physicians and providers can qualify for $44,000 in Medicare incentives if they demonstrate ‘meaningful use’ of an Electronic Health Record starting in 2011.” The page goes on to explain additional $4,400 and $12,500 cash payments that are available as well as 4 percent bonuses of whatever Medicare is otherwise paying.

[You might ask how Practice Fusion gets paid for keeping their server hard drives spinning. They sell ads in the front and aggregate data out the back.]

Update (email today from a doctor friend): “I just got a letter from Medicare that I have to send them a check for $27.42 because they overpaid me for 67 patients with overpayment amounts ranging from $0.01 to $1.37 with the majority being in the $0.30 range. It’s their fault, since we bill the same for everything, and they overpaid me that penny.”

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This New Yorker article on the Galleon hedge fund insider trading prosecution is worth reading if you’re curious about how the SEC goes out about investigating Wall Street and in what percentage of American business folks can be persuaded to break the law.

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Today’s New York Times carries “Struggling to Stoke Economic Growth in Greece”, an article about how the heroic economists and politicians in Greece intend to restore economic growth. It turns out that the politicians’ answer was green energy:

“A few months after Greece was seized by its debt crisis, Prime Minister George A. Papandreou had a grand idea to revive growth: sun-drenched islands would be dotted with solar panels and wind turbines to transform the country into a ‘green economy,’ attracting badly needed investments and creating hundreds of thousands of new jobs.”

As Greece would presumably be importing all of the technology from China and Germany, it is unclear why this guy thought there would be any competitive advantage for Greece over other sunny portions of the globe.

Is it time to short a country when the politicians begin talking about how they’re going to revitalize the local economy through green energy?

[The article did make me wonder how Greece digs its way out. Given the risk of Greece being ejected from the Eurozone and a subsequent currency devaluation, anyone with money on deposit in a Greek bank should probably be thinking about moving it to France or Germany. An investor thinking about setting up a new business in Greece would have to worry about civil unrest (will a riot destroy my new enterprise?), dramatic tax hikes (the politicians can’t resist spending and nobody will lend to them anymore, so they will eventually have to establish new taxes; how can one be sure that they won’t fall heavily on the new enterprise?), and a shortage of skilled labor (as the smart young people emigrate to the more successful EU countries). Of the bigshots negotiating the latest Greek bailouts, I wonder how many of them would be willing to invest their personal funds in a new Greek business. If the answer is “none”, how do they expect the country to recover?]

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