Philip Greenspun’s Weblog

Journalists and investors breathed a big sigh of relief today, as GDP numbers showed a growing economy (example). As noted in an earlier posting, an economic statistic that includes government spending is not necessarily indicative of sustainable growth. The data available from bea.gov (click on “NIPA tables”) show that in constant 2005 dollars, government spending has reliably expanded from $2.1T per year in 2000 to a rate of $2.6T in Q3 2009. How about private investment? It was $2T in 2000. Last quarter, it was $1.5T, down from a peak of about $2.25T in 2006. Despite an expanding U.S. population and workforce, private investment is much lower than it was a decade ago.

One problem with the private investment statistic is that it includes things that are essentially unproductive, such as the real estate bubble. A new house, once finished, does not generate jobs for workers in the same way as a factory expansion. Fortunately, the BEA breaks out “equipment and software”. This excludes commercial real estate and concentrates on machines used by business. Such investment was $0.9T in 2000, peaked at $1.1T in 2007 and has fallen back to a rate of $0.88T per year in recent months.

What happens with a fixed level of private investment and a growing population and workforce? If the effectiveness of the investment is held constant, you’d expect either (1) workers to become less productive and receive lower hourly wages, or (2) existing workers to remain equally productive and receive the same wages, but new/young workers to be unemployed (or some combination of the two).

Could we paint a rosier scenario with the same numbers? Sure. We can say that investment has become more cost-effective. In the expensive old days a small company would need to buy a copy of Microsoft Office for every employee and purchase Exchange to run email. Now they can use Google Docs and Gmail. In the expensive old days a company would need to buy new tools when it changed a product design; now the tools are numerically controlled and can be reprogrammed cheaply (this is a problematic argument because CNC dates back to the 1950s). We’ll be able to grow because we are investing smarter, not harder. A potentially stronger argument is that we’ve moved beyond manufacturing. We’ll let the Chinese and Germans build solar energy systems while we concentrate on services. A service business requires much less capital investment than a manufacturing business.

A year ago I wrote my economic recovery plan, saying that the key to recovery for the U.S. would be creating an environment favorable to business investment. The global crisis is over and companies are investing, but they are mostly investing in other countries (example from NYT: “India Finds Itself Awash in Foreign Investment”). Whatever it is that we’ve done is getting a thumbs-down vote from business executives who decide where to create private jobs.

It sort of makes sense when you think about all of the weight that an investment in the U.S. has to carry. In the last year alone, we’ve added some substantial new obligations. A company will have to pay not only for its own workers but, through taxes, also for the pensions and health care of retired 48-year-old GM and Chrysler workers.  A U.S. employer will have to pay the world’s highest prices for health care for its workers, just as in mid-2008, but also will have pay for health insurance for Americans who don’t work or who work for other companies. An investor in the U.S. will find his returns reduced by whatever additional and ongoing amounts the government decides to hand out to Wall Street banks (the handouts started just over a year ago). An investor in the U.S. will have to pay for a factory, as in 2008, but also gold-plated pork barrel “stimulus” spending.

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I had dinner with some flying buddies this evening. I mentioned that some readers of this weblog had taken offense at my referring to Barack Obama as “King Obama”, though for eight years I had called our president “King Bush II” without anyone becoming upset. Was it fair to call Obama a king?

My argument was that recent American presidents are like kings in that their experience of life bears no relationship to that of a commoner. A current president of the U.S.

• never waits in line
• never waits in traffic (or drives a car! or gets a car inspected or renews a car registration or renews a driver’s license)
• never waits for a doctor (he has one or more available inside the White House at all times)
• never interacts with a health insurance administrator
• never waits to catch someone’s attention
• need not carry a wallet
• is always served his favorite foods
• does not go through the $50 billion TSA security system at airports
• has an entire 400-seat Boeing 747 for his personal plane
• upon reaching his destination, finds that three helicopters and multiple land vehicles have been flown in ahead of time for his use (when Obama visited England, instead of borrowing Blackhawks from the British military, the U.S. taxpayer paid to have additional cargo planes full of helicopters flown across the Atlantic)
• never has to cook any food, clean any surface, or organize anything in the house
• has a spouse who doesn’t have to do any domestic chores (thanks to the First Lady’s staff of more than 20 assistants)
• never encounters an unemployed neighbor (because he lives in recession-proof Washington, D.C. and in any case does not walk around the neighborhood too much)
• sees only people who are dressed in their best clothing (e.g., at $6000 per person fundraisers)
• when traveling, sees towns that have been scrubbed and polished to the point that they should be considered Potemkin villages
• need not do sysadmin on any home PCs
• need not sort out phone bills or any other bills for that matter
• need never change a lightbulb, call or wait for a Bosch dishwasher repairman
• need never do any yardwork
• does not send his children to public schools (where 90 percent of American children are warehoused)
• need not worry whether his children will be accepted into an elite private school
• never leaves the house without being surrounded by armed guards
• need not worry about future employment or retirement, if only because of the speaking fees available to former presidents

Was it always like this? I’m just finishing No Ordinary Time: Franklin and Eleanor Roosevelt: The Home Front in World War II. Eleanor Roosevelt, who traveled extensive around the country and abroad, “refused Secret Service protection, believing that their presence made her look more like a queen flanked by an imperial guard” (book). Because the number of servants and staff required by the Roosevelts was so much less than the number employed by the Obamas (Eleanor may have had just one social secretary), the White House had a lot of empty rooms that they let friends, family, and associates use. Some guests camped out for months or years, a familiar experience to average Americans who live in a big house during tough times.

From 1956 through 1960, President Eisenhower took shorter trips in an Aero Commander, an efficient six-seat airplane with two piston engines (source). The 60,000 gallons of fuel that the current Air Force One burns on a trip to England and back would power the Aero Commander for approximately 2000 hours.

It isn’t any actions carried out by King Bush II or King Obama that make it fair to refer to them as kings, it is the fact that they share so few day-to-day experiences with their average subject.

Was this argument convincing? “I had a breakfast meeting in Bermuda recently,” replied a business guy, “and the Prime Minister of the U.K. happened to be vacationing there at the same time. He was sitting at the next table. No security detail. No special service. No special menu. I don’t think it makes sense to call Obama ‘King’. I think ‘Messiah’ is a more accurate term.”

[Note that nowhere in this posting or in earlier postings have I suggested that we dispense with the American monarchy. I have not advocated that we would be better off being governed by one of our peers. I simply believe that the lifestyle of the president has changed so much since Eisenhower that we need a new title for the position.]

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… by reading this New York Times article about some non-profit employees in New York City. Because non-profit Form 990 filings with the IRS are public, the salaries of the five highest paid workers become available at Web sites such as guidestar.org.  The union guys who roll pianos around on the stages of Lincoln Center will earn an average of $290,000 this year. Their counterparts at Carnegie Hall earn between $330,000 and $420,000 per year according to the article (the actual Form 990 for 2006 shows, on Statement 18, that the five highest paid stagehands at Carnegie earned these amounts plus an additional $75,000 to $107,000 in contributions to benefit programs; i.e., the total compensation for one guy was $535,000 per year).

Comparison: Average medical doctor in Manhattan earns $192,000 per year (source).

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At a recent birthday party, while my cake blazed like the wreck of the Hindenburg, I was gifted with a great book: The Map as Art: Contemporary Artists Explore Cartography (Thank you, Suzanne!). A related Web feature is available at http://www.womansday.com/Articles/Family-Lifestyle/10-Amazing-U.S.-Map-Artworks.html (the top Aaron Foster piece is behind the counter at the Smithsonian Museum of American Art gift shop, next time you’re in Washington, D.C.).

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… because nobody can see past 2010. That was my argument at lunch today with a friend who is founder and CEO of a local tech company that peaked at about 200 employees. I noted that most economic forecasts said that things here in the U.S. are going to be slow through 2010 but then pick up in 2011. They have some data that has lead them to conclude that things will remain slow for the next year or so, but no data at all for 2011. Nobody has a crystal ball so nobody can see further than about a year. Why then do they believe that there will be a recovery in 2011? Because they think that the default state of the U.S. economy is growth. As I noted in a January 2009 posting about England, it is possible for an economy to slide sideways for decades (Argentina provides another example).

What did this guy who has created 200 jobs have to say about the theory?

“Most businesses right now are sized under the assumption that there will be a recovery pretty soon. If the economy does not grow, they will have to make a lot more cuts. I don’t see anything on the horizon that would indicate a recovery.”

He is not planning to invest or hire anyone for his firm.

Anyone else have a tale of private hiring or investment to offer? A firm not in government or healthcare doing some hiring? (or not) If so, please tell us about it in the comments.

[Why was I lunching with a business guy? A friend had noticed a posting for a $9/hour part-time job with this company and asked for help in securing it. When I pulled out my friend’s resume during lunch, the CEO said “We’re hiring?”]

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Some of my airline crew friends would refer to a plastic shopping bag containing their sandwich as a “West Virginia lunch pail”. When folks asked how we navigated while flying a helicopter from California to Boston I would say that we used a “Kentucky GPS”, i.e., descending to 250′ above the ground and reading the green signs on the Interstate.   In that spirit, let me say that I emailed my “Crash of 2008 Concierge Physician” (doctor friend) about whether I should be concerned about entering Day 15 of swine flu symptoms. I’ve still got a sore throat and cough. His response:

“I see something similar to asthma on frequent basis after a viral upper airway disease which gives a bit of wheezing and cough for several weeks-  can be treated with steroids if symptoms are bad.  Will stop on its own eventually (all bleeding stops eventually as well due to clotting or death).”

Now I feel better.

[Separately, a friend’s 5-year-old had been trained to protect himself from flu germs the modern way, with hand sanitizer. Unfortunately the bottle was located on a counter higher than his head. When he pressed on the pump some of the alcohol-based fluid squirted in his eye. Now he has an ulcerated cornea, which is extremely painful but usually heals well. He’s now relegated to the dark basement, watching TV in a Roman Polanski outfit (dark sunglasses, baseball cap).]

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Back in April, I wrote a post about how local newspapers provided an important check on politicians handing out taxpayer funds to their cronies. I’ve written more recently about the challenge of American private sector workers ever being able to come up with enough taxes to pay for public employee pensions. There are a few recent Boston Globe stories that illustrate the value of a local newspaper in keeping the taxpayer informed:

• an October 22 story about Boston firefighter pensions (74 percent of retirees become disabled on the job, which entitles them to tax-free pensions; a majority were injured on a day when they happened to be filling in for a supervisor, which entitled them to a pension based on the salary of the person for whom they were filling in that day)
• a library trustee who earned almost $10,000 per hour (in pension benefits) for attending a few board meetings
• two public employees approve each others’ pensions (one got $63,000 per year… EXTRA)

What is upsetting about these stories is that you know the Globe’s small staff can’t possibly be finding more than the tip of the iceberg when it comes to state/local government abuse of the taxpayers.

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An economist pointed out that Bill Clinton was practically a libertarian compared to Barack Obama. Both are popular Democrats, separated by just eight years, so how to explain the difference in philosophy?

My answer was that Clinton had come from Arkansas, a poor state (#48 in household income). There wasn’t that much accumulated wealth in Arkansas to ladle out to cronies. Clinton thus turned to the only remaining possible strategy of trying to grow the pie by making an environment more conducive to business investment.

Obama, by contrast, came to national office from Illinois, a wealthy state (#16). By taxing some of the real estate, factory, and other wealth in Illinois it is possible to hand out significant checks to tens of thousands of supporters. Why attempt the hard work of growing the economy when one can simply tax the Willis (formerly Sears) Tower?

Temperamentally we should expect politicians from wealthy states to behave like Saudi princes, assuming that an inexhaustible supply of wealth is their birthright and spending most of their time figuring out how to distribute it.

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Not quite as important a contribution as the Britney Spears Guide to Semiconductor Physics, but still interesting is this example of Delaunay Triangulation, Hugh Hefner style. Speaking of Hef, the New York Times ran a story on his graceful aging. Should he die of a Viagra overdose at the age of 85 while in bed with Kristina and Karissa (twins; they’ll be 22 by then), there is little doubt that folks will say “He really would have been happier in a comfy chair reading page 39 of Greenspun’s big PDF and learning how to compute the dual of a Voronoi diagram in Common Lisp.”

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I’m deeply confused by a Paul Krugman article in the October 22 New York Times. He argues that the Chinese are ruining the world economy, and our economy, by keeping their currency weak. Chinese exports are too cheap. I can’t figure out why this is bad. Would we be better off if we paid higher prices for Chinese-made car parts, electronics, clothing, etc.? Wouldn’t that leave us with less money to spend on other stuff and therefore worse off?

And what about this finance professor from University of Chicago, John Cochrane, who tears apart one of Krugman’s earlier pieces? Whom are we to believe, the Nobel Laureate Krugman or a glider pilot who lives in a part of the country with no ridge lift (see the bottom of his papers page)? Cochrane seems to be a bit of a contrarian, arguing in the Wall Street Journal that the Lehman failure did not cause the Collapse of 2008.

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