Philip Greenspun’s Weblog

Living in the western suburbs of Boston, surrounded by Millionaires for Obama, seemingly every third car is a pavement-melting SUV, purchased by rich parents anxious to protect their precious children. Spending $50,000 for a Volvo XC90 or $70,000 for a BMW X5 and enjoying less interior space than a Hyundai Sonata sedan seems like a great deal to them because Precious Little Johnny’s safety will be guaranteed. What if the parent had cheaped out and bought a $10,000 minivan being discarded by a rental agency instead? Conditional upon an accident actually occurring, the minivan kid would have half the risk of death or injury. That’s right! A child in an SUV accident, even after adjusting for all possible age factors, is twice as likely to be killed or injured compared to the same child with the same driver in a minivan accident. Read the full article from Injury Prevention.

[I learned this while researching a new review of the Honda Odyssey on which comments/corrections would be appreciated. I’ll be adding photos soon.]

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A friend emailed me The Experience Economy, by David Brooks. Brooks is responding to Tyler Cowen’s The Great Stagnation in which, supposedly, Cowen says that the U.S. grew fast until 1974 by doing the easy stuff, e.g., exploiting our cheap land and other natural resources. When the growing got tough, the Americans stopped growing, according to Cowen, at least at the individual income level (the population has ballooned from around 200 million people to over 300 million, so of course the GDP is larger).

Brooks says that young people have become less materialistic. They are seeking “meaning not money” and that’s why they are so likely to be unemployed and poor.

I’m beginning to wonder what the qualifications are to write for the New York Times. Random bloggers don’t have paid research assistants, fact checkers, and all day every day to hunt down sources. So you might expect them to write something like this in 20 minutes and then head off to their day job. But for David Brooks this is his day job and he does have a lot of institutional resources on which to draw.

Why couldn’t he find “Is Materialism Rising in America?” from the September 2000 issue of Society in which Terry Nichols Clark says that most surveys indicate that “private materialism has risen since the 1960s among the young”. Although there is some disagreement among sociologists, there is certainly no convincing evidence that materialism is on the decline. With the cost of a college education having risen so much faster than inflation, it isn’t even clear why one would expect a decrease in materialism. With the increased crowding of the United States has come a huge increase in the real cost of houses in nice neighborhoods that entail short commutes. When a young person learns that a prestigious college degree costs $250,000 and a desirable house less than a one-hour drive from work is $1.5 million, you would have to question his intelligence if he didn’t answer “financial success is very important to me”.

Nor does Brooks address the OECD study that found a 20 percent increase in per-capita hours worked in the U.S. from 1970 through 2002. Without citing any sources, Brooks says “For the past few decades, Americans have devoted more of their energies to postmaterial arenas and less and less, for better and worse, to the sheer production of wealth.” Perhaps he means that Americans are at work but they’re wasting time on Facebook instead of trying to produce wealth?

If this is the best that traditional media can do, I can’t figure out why the New York Times maintains that it is somehow higher quality than the average wordpress.com blog.

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If you’ve wondered how so many unionized Massachusetts state employees manage to earn over $200,000 per year (plus pension and other benefits worth at least another $100,000), this Boston Herald story provides a small clue. As a 2011 gift to taxpayers, Deval Patrick and our one-party Legislature decided to force cities and towns in Massachusetts to keep offices open and “appropriately staffed” on Evacuation Day and Bunker Hill Day, two holidays not recognized anywhere else in the United States. Meanwhile, union agreements require the government to pay the workers double-time.

[Background: Visit http://www.boston.com/news/local/massachusetts/specials/2010_state_salaries/ and select “department of state police” (and no other options), for example, to see the difference between nominal and actual cash compensation; note that the system is restricted to just those civil servants who earned more than $100,000 per year (the median wage in Massachusetts is about $18/hour or $36,000 per year (source)). Remember that pensions are based not on the nominal salary, but on actual compensation during an employee’s last few years of work. So a Massachusetts worker whose “salary” is $75,000 per year can easily get a pension, starting at age 45, of more than $100,000 per year. The retiree also gets state-paid health insurance whose current funding shortfall will cost the average Boston family about $100,000 (source) in addition to whatever level of taxation the family is currently paying.]

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http://www.nytimes.com/2011/02/14/opinion/14Salmon.html says that the Securities and Exchange Commission’s regulations for public companies are so onerous that all of the real investment is happening in the private equity world:

“Only the biggest and oldest companies are happy being listed on public markets today. As a result, the stock market as a whole increasingly fails to reflect the vibrancy and heterogeneity of the broader economy. To invest in younger, smaller companies, you increasingly need to be a member of the ultra-rich elite.”

An interesting statistic is that the number of U.S. public companies is down from a 1997 peak of 7000 to just 4000 today. That’s impossible to argue with, but perhaps the author is wrong about the reason.

The S.E.C. certainly is a rich source of annoyance for public companies, forcing them to file a lot of paperwork and making the CEO sign a statement that he is only looting as much as the buried disclosures say he is. But isn’t it possible that it is investors who are shying away from the public markets? The S.E.C. regulations don’t stop employees from looting from investors by issuing themselves enough options to dilute the cash investors by 30 or 50 percent (I wrote about this is my economic recovery plan). Nor do the S.E.C. regulations stop employees from repricing those options whenever the stock falls (so an executive whose job was to push the stock price from 50 up to 100 gets the options repriced at 20 after the stock falls due to some ill-advised decisions).

Let’s look at Robert Nardelli, named by CNBC as one of the “Worst American CEOs of All Time”. He received a mostly-unconditional $500 million in salary for trashing Home Depot and leaving its shareholders with a worn-out shell. At Chrysler, however, under the thumb of the private equity owners, Nardelli earned only $1/year and anything additional was to be based on the company’s success (Nardelli joined Chrysler in August 2007; the company went bankrupt in April 2009 (Home Depot paid $210 million just to get rid of Nardelli; you’d think that Chrysler would have handed him at least a few million of the taxpayer dollars that the Obama Administration gave them, but press reports suggest otherwise)).

Perhaps the Russians who are financing Facebook are too savvy to subject themselves to the depredations of U.S. public company executives. If companies aren’t going public, couldn’t it be because they can’t get the money that they need through an IPO? That the folks with the big dollars prefer to keep a closer eye on their money than is practical in the U.S. public market?

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I looked at today’s New York Times and saw stories about Egypt’s Hosni Mubarak, refusing to step down in the face of protests, and New York Representative Christopher Lee, resigning in disgrace after emailing a shirtless photo of himself to a hot 34-year-old “government employee” (plenty of time for sex when you have to work only 15 hours/week!). It then occurred to me that perhaps this is the way angry citizens will get rid of unwanted politicians: Photoshop a shirtless image of the hated leader and then distribute to folks advertising in the personals section of Craigslist.

As U.S. politicians are mostly older and not very computer-savvy and the people whose future income they are spending are young and often very able digital photo editors, perhaps those who aren’t able to vote will finally have a way to fight back against state and federal legislators who, through unfunded public employee pension commitments or explicit borrowing, are squandering what might have been their future wealth.

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I have drafted a brief review of the book Dreaming in Chinese and would appreciate comments/corrections.

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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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