Philip Greenspun’s Weblog

Here’s a report from some Stanford graduate students estimating that the California pension systems are underfunded by approximately $500 billion or approximately $36,000 for every California household (i.e., taxes on Californians are likely to increase by $36,000 per household at some point in the next decade). The report covers only three of California’s pension systems, so the total overhang will presumably be larger. This report makes one realize the impossibility of being a municipal bond investor. You can’t rely on the ratings agencies, whose corruption and incompetence were exposed in the Collapse of 2008 (every bond was rated AAA until it became worthless and then Moody’s or S&P decided to downgrade it). You can’t rely on public budget numbers because pension obligations are obscure and may be hidden in union contract fine print. So why buy these assets? If you want a bond in dollars, buy a Treasury (the federal government can and will print money to pay you). If you want to get higher yield along with diversification, buy the sovereign debt of some other country, preferably in that country’s currency (since that is the only way to mitigate the risk of a U.S. dollar collapse, as predicted by John Paulson, the most successful investor of the last decade).

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I just finished listening to Traffic: Why We Drive the Way We Do, appropriately enough, while driving around Boston. The book is probably better read/skimmed than listened to, and/or needs abridgment. There are some worthwhile nuggets of information, however, and I’ve selected a few below.

SUVs are hugely costly to society. Because they are long and sluggish, they spend much more time getting rolling from a stop at a red light. This is one reason that our city traffic has slowed down. SUV drivers sit higher from the optical rush of the road so they are more likely to speed (just as you wouldn’t have a strong sensation of speed in an airplane 1000′ above the ground, though the airplane is moving at 4X the speed of a car). SUV drivers in at least two countries studied are less likely to wear seatbelts, more likely to be talking on a mobile phone, and less likely to have both hands on the wheel. They crash constantly and are statistically less safe than a minivan that is lighter weight.

Low-cost parking meters in cities are a primary cause of traffic jams and accidents. About 12 percent of cars driving around a city are looking for a parking spot. Those folks drive very slowly. When they stop, they tend to get hit by other cars, and traffic comes to a standstill until the accident is cleared. As soon as parking spots are more than 80 percent occupied, city traffic slows down to a crawl. (If we had a nationwide wireless Internet and perhaps an RFID transponder in cars, the solution would presumably be dynamic pricing for parking spaces so that there were always about 20 percent free.)

Intersections with lights are hugely dangerous and have very little capacity compared to roundabouts. The heavyweight control systems and signs don’t ensure driver or pedestrian safety. The intersection is useless during a clearing phase that has to be lengthened every year (now it is about 2 seconds of red in all directions). The intersection is very slow to start up again after a red (see the note about ponderous SUVs above).

Signs are basically useless, especially as they have been layered onto our roads year after year. People drive slower around curves with no “curve warning 30 mph” sign than they do with the sign. Deer crossing signs do nothing to reduce the prevalence of deer-car collisions.

High curbs and crosswalks do not protect pedestrians. In fact, in Dutch cities where all signs, curbs, and markings have been removed, accidents and injuries have gone down. Traffic engineers have spent decades applying techniques that work on highways to city streets and continue doing so though all research shows it doesn’t work. All of the road engineering discourages drivers from paying attention to what is happening around them. [Similar results were found in London.]

Skill does not make for a safer driver; an insurance company study of NASCAR-style racing drivers found that these supremely skilled individuals were more likely to get into accidents when driving on public streets than the average driver.

Contrary to advertisements touting the miracles of airbags, new cars are no safer than old cars, according to studies in Norway and the U.S. Adjusted for miles driven, people in new cars are more likely to be in an accident and more likely to be injured than people in old cars. Quite a few people are killed in new cars while traveling at less than 35 mph. What would reduce deaths and the cost of injuries would be if everyone wore helmets, though this has never been seriously proposed.

I recommend the book in print because each section stands on its own nicely and the reader can pick and choose the most interesting topics.

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During a discussion today about potential iPad sales, a friend and I got distracted by reflecting on the tremendous value delivered by a vanilla PC. Over on the Dell Web site right now, a basic 15″ laptop costs $499 and includes 320 GB of hard drive and 3 GB of RAM. So for the same price as an iPad, you’ve got a machine that can do the following:

• give each family member his or her own private and personalized set of files, programs, and bookmarks
• support the creation of almost any kind of document, plan, or project
• run nearly all of the world’s software development tools
• function as a videophone
• function as a television, DVD player (and burner), radio, and videogame
• be used almost anywhere in the world (multi-voltage power supply and standard 802.11 wireless adapter)

The machine exacts a price in terms of learning and administration, but it does a lot for $499!

So… can Apple sell a huge number of machines at the same price that do a lot less? Sure, at least to those who have an extra $499 for an indulgence.

Let’s look at Apple’s track record:

• Macintosh: substantially more expensive than competition, 2-5 percent market share
• iPod: comparable price/megabyte to competition, 55-70 percent market share
• iPhone: slightly higher price than other smart phones, 16 percent market share of smartphones (source), negligible market share of all mobile phones

There have been enough spendthrifts worldwide to keep Steve Jobs in Gulfstreams, even when an Apple product carries a premium price, but Apple has only touched the mass market with products that are close in price to competitors’ products.

The best predictor of iPad world dominance may therefore be how much it costs to buy a similar tablet from a competitor. I.e., if the competition costs about the same (see “Zune”), Apple could end up with most of the market.

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One of the highlights of my trip to Phoenix was a visit to Taliesin West, Frank Lloyd Wright’s summer camp for teaching and working. I learned that parents may be able to influence a child after all, contradicting The Nurture Assumption to some extent. Frank Lloyd Wright’s mother home-schooled him and filled his childhood with architectural drawings and models. Her plan for him to become an architect worked out spectacularly well.

Frank Lloyd Wright provides an inspiration to older folks. He established Taliesin West at the age of 70. He did approximately 30 percent of his work between the age of 70 and his death at age 92. He worked until five days before his death.

Related: 2008 posting about Fallingwater.

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After my initial one-year deal with Verizon FiOS ran out, they sent me shocking near-$200 monthly bills, so I downgraded my service to the bare minimum last fall. I had Internet plus a lifeline phone. Then they started filling my mailbox with an offer to go back to the glorious world of Verizon unlimited phone, Internet, plus some TV for a $65/month teaser rate, escalating to $95/month for a total two-year period. I finally took the bait and upgraded my service via the Web site that they provided.

Five minutes later, my Internet stopped working. I called FiOS tech support. “You placed an order for new service, so of course we had to shut off your old service,” they helpfully explained. When would the Internet that I was already paying for be restored? “You’re scheduled for an install on April 9th.” So the upgrade process has a designed-in two-day service outage? “No. Sometimes people are cut off for a week or more.”

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I have drafted a summary/review of The Greatest Trade Ever. Comments/corrections would be appreciated.

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At dinner this evening we compared a recent generation Amazon Kindle with the iPad for use as an electronic book. The text on the Kindle is definitely sharper and far more readable in bright light. The text on the iPad has the fuzzy edges that you’d expect from a color screen, but under typical home lighting is easier to read than the Kindle.

The Kindle users around the table, ranging in age from 14 to 46, all found that the iPad was unpleasantly heavy. For handheld use, e.g., on a treadmill, the Kindle is much better. For travel, the Kindle is also the big winner due to its two-week battery life and therefore ability to travel without a charger.

People generally liked the iPad, but not as a substitute for the Kindle.

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My rental car here in Phoenix is a 2010 Toyota Corolla. It is a reasonably nice car, but once again I am struck by the lack of innovation in the car industry. It is as though the semiconductor revolution never occurred. The car is seemingly identical to a compact car from 1985. The climate control is the same (no thermostat). The radio is the same (AM, FM, CD; no HD radio, no satellite radio). The Internet connectivity is the same (none). The navigation capability is the same (none). The monitoring and recording capabilities are the same, i.e., none (you’d expect by now cars to have some cheap video cameras to record the lead-up to crashes, to warn of lane departures, etc.).

The only reason that the owner of a 25-year-old car would upgrade to this 2010 Corolla would be if the 25-year-old car had fallen apart. So… as car makers improve durability they are digging their own graves as far as sales are concerned.

Update: The book Traffic: Why We Drive the Way We Do cites research from both Norway and the U.S. that found people were more likely to crash and more likely to be injured in newer cars compared to older cars. This was adjusted for miles driven. (This is a response to folks commenting that the 2010 Toyota is worth 30X as much as a roadworthy 1985 Toyota because it has better safety features.)

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Top of my reading list here in Phoenix is The Greatest Trade Ever, about many of the folks who profited from the inability of Phoenicians to pay their subprime mortgages. The value of a house here is down about 50 percent from the peak (chart). Being a tourist in town, one does wonder why investors thought that the citizens of Phoenix were sufficiently educated and clever to earn enough to pay off such expensive houses. Here’s a sampling of the local labor force:

• waiter at $300/night Montelucia resort could not pronounce “pinot noir” and knew less than nothing about the food that was being prepared in the kitchen
• waiter at $300/night Arizona Biltmore brought bone-dry Cobb salad to the table with no dressing and no bread
• waitress at a Mexican restaurant decided that two water glasses would be adequate for a party of six (we can’t blame the Mexican schools for this one; she was about as white-bread an American as can fit into a pair of mule-sized blue jeans)
• Enterprise rental car agency delivered car with liquid spilled coffee in cupholders and various other parts of the interior

The incompetence of the average worker here ended up being inspiring. If people like this can have jobs, the U.S. economy can’t be doing that badly. On the other hand, I wouldn’t be relying on them to make mortgage payments.

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My friend David had a business trip out to Phoenix and I decided to tag along. This morning we went for a walk up to the Sears-Kay Ruin. As we prepared for the 10-minute stroll through the desert, his wife asked me “Do you think there are rattlesnakes up here?” I replied confidently that there was no need to worry because the trail was so heavily traveled.

When we got to the top, a local pointed out a 5′-long rattlesnake in the brush just a few feet from the trail. “We had one about that size in our garage in North Scottsdale,” he noted. “I pulled him out of the garage with a rake, but he just kept wanting to go back in. So I shot him with a .22.”

Other wildlife seen on the walk: An Arizona Giant Centipede (venomous, of course), a bunny, a few lizards, and a German Shorthaired Pointer (whose presence caused the rattlesnake to activate his rattle).

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