Philip Greenspun’s Weblog

A friend emailed me an article about public employee salaries and pensions and asked my opinion. Here was my reply:

He does sound like an angry white guy 🙂

I think he has missed a big part of the point, though. Bureaucracies can’t reward themselves; it is politicians who trade handouts from the public treasury of tomorrow for votes today. And Republicans have been almost as bad as Democrats in this regard, and the Greeks just as bad as Californians, so it looks like a fundamental flaw of our political systems, not something specific to a party.

He doesn’t propose any solutions. Probably the only workable one is to prevent government workers from voting. That was pretty close to what the Framers wanted, by excluding D.C. from the electoral college, House, and Senate. Now that government payrolls have grown to such a huge percentage of the workforce at all levels, we probably need to do that in state politics as well.

So… were the Framers wiser than we are today? They figured out that there was an inherent conflict of interest in allowing a government worker to vote because he would almost surely vote for politicians who promised to expand the government and increase salaries for government workers. The folks who drafted various state constitutions didn’t bother to exclude government workers from state elections because at the time no more than 1 or 2 percent of American households could possibly have been dependent on a government paycheck (since government at all levels was such a tiny percentage of GDP).

It seems harsh to deny the franchise to what will soon be nearly half of all American workers, but perhaps it is the only way to save the country from insolvency.

[Of course, I recognize the impracticality of getting any such change to the American system passed; roughly 50 percent of voters would be almost guaranteed to vote against it! So mostly this idea is good for understanding how democracies collapse once a sufficient percentage of the citizens are government workers. Note that Greece was under military dictatorship until 1974. The economic collapse occurred after 36 years of democracy and roughly when their first large batch of government workers retired with pensions approved by democratically elected leaders. U.S. government workers were first allowed to unionize and collectively bargain for wages and pensions in the early 1960s. Our problems became acute after about 50 years and would have occurred much sooner if not for a near doubling of our population due to immigration (population explosions are great for government finance).]

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Waiting for a friend in a downtown skyscraper the other day, I pulled a corporate finance text off her shelf to refresh my memory about why companies borrow money rather than allowing individual shareholders, if they want a higher-risk investment, to borrow money on their own and purchase shares with leverage. The book covered the Modigliani-Miller Theorem, a 1958 result showing that borrowing money doesn’t help a company’s managers or shareholders… in a world free of corporate taxes. Given a corporate income tax and deductible interest, however, a company can significantly improve its performance by borrowing.

The U.S. has some of the world’s highest corporate taxes (source) and we’ve also had a lot of leverage (Wikipedia says that private equity is more than twice as big in the U.S. than in Europe despite comparable economy sizes). The leverage made the Collapse of 2008-? a lot more painful than it would have been without the leverage (or maybe the collapse wouldn’t have happened at all).

Has anyone heard a public debate on this subject? I.e., whether or not our tax code substantially increases the risk of corporate bankruptcies by encouraging leverage?

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In the last week I’ve replaced three compact fluorescent (CFL) light bulbs. All were rated to last between 8,000 and 12,000 hours; none had been installed for more than two years. Two of the bulbs were manufactured by Philips. One was installed in a seldom-visited garage 1.5 years ago and had been on for perhaps 1 hour per week. So it lasted 75 hours. I don’t think that it was temperature extremes that killed it because it was stamped “Outdoor”.

How are CFL lifetimes calculated? Are they for turning on the light and walking away for a few years? Does cycling them on and off destroy them much sooner than the published lifetime? My main reason for buying CFL bulbs was that I thought I would be spared the hassle of changing light bulbs, but so far I seem to be running around with replacements about as fast as before (except now it is costing 8X as much).

And who has tried the new LED light bulbs? Are they ready for prime time? I am ready to give up on CFL.

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On Friday I assisted with getting a Mercedes SLK convertible to the dealer for service. The car needed an oil change ($279) and for a whole bunch of crud to be cleaned out from near the ventilation blower (over $1000 for the cleaning and a new motor; the car apparently has no protection against sucking in leaves, pine needles, squirrels, etc.). If you are less than 5’3″ tall and want a $50,000 two-seater with less nimble handling than a Honda Accord, this vehicle should be on your short list…

We were given a brand-new Toyota Camry as a loaner. On the basic model of Camry, Toyota doesn’t want to give the consumer the convenience of a climate-control thermostat, so the temperature control looks like the old cold/hot slider. However, underneath the system has all of the mechanical complexity of the fully automatic system. The dashboard knobs are not mechanically connected to a valve controlling hot water from the radiator, as in my friend’s 1989 Honda Accord (still working fine at 340,000 miles). The dashboard knobs send electric signals to motors that push on the same levers as in the fully automated system. Except that in this car something was broken and there was no heat at all. The consumer thus pays for maximum possible complexity, unreliability, and expense to maintain while receiving the minimum possible convenience in return.

How was it to drive around in Massachusetts in February with no heat? We’d just flip on the heated seats… except that there weren’t any on this trim level.

We returned the Camry and received a brand-new Mercedes C300 sedan as a substitute. The car had a GPS antenna on the roof, a medium-sized LCD screen in the middle of the dashboard, and a complex user interface controlled by a multi-function knob. The only thing missing? A $2 GPS chip. In their attempt to get a consumer to pay up an extra $2000 for a GPS, Mercedes had compromised the car’s interface (a driver doesn’t need the multi-function knob and menus on the LCD screen to control a radio and a heater/AC system) and uglified the roof. What do they do with all of those useless pixels on the LCD screen? Display a 1950s-style FM radio dial and show a moving needle as the seek up/seek down buttons are pressed.

I’m wondering if turning out so many brain-dead products is hurting these companies’ long-term prospects. What happens when the Chinese manufacturer shows up here with a low-priced car that has all of the electronic stuff people would expect as standard equipment? If people remember their $25,000 Toyota with no heat or $35,000 Mercedes with no GPS they might be a lot more willing to try a new brand.

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.. from The Week, which just arrived at the house in old-fashioned hardcopy.

An item about a quintessentially American event: a church hosts an NRA firearms safety training class; the instructor shoots a student in the foot (more).

Quote from Calvin Coolidge: ““Nothing is easier than the expenditure of public money. It doesn’t appear to belong to anyone. The temptation is overwhelming to bestow it on somebody.”

The French spent an average of 1 hour 38 minutes eating lunch in 1975; today the number is 31 minutes.

A Zebra ran loose in Atlanta for 40 minutes (excerpt from 911 call in this news article).

The Wall Street Journal reported on research that shows actively managed investments suffer more than you’d think because of excessive trading: “According to Morningstar, mutual funds with the highest portfolio turnover rates have underperformed the slowest-trading funds by an annual average of 1.8 percentage points over the past decade. A study of pension-fund stock portfolios found that, on average, the funds would have raised their annual returns by nearly a full percentage point if the managers had gone on a 12-month vacation and never made a single trade.” (source)

Harvard eggheads show that a developed country starts to suck wind economically when debt reaches 90 percent of GDP (full paper); the U.S. debt is now heading over 100 percent of GDP and soon we will be “giving 110 percent” (since the federal deficit is roughly 10 percent of GDP).

My favorite was about some guys who built a huge “treadmill” and use it to study elephant gaits in Thailand. When I found the original story, however, it turned out that the reporter was confused. The researchers built only a platform with strain gauges and elephants walked over the platform. It would have been fun to see video of an elephant using a treadmill desk…

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On Friday I officially ended my status as the only person left in the U.S. who had not seen the movie Avatar. My favorite parts of the movie were, of course, the script and the love story. However, I noticed that some effort had gone into special effects and, in particular, into creating a world full of animals. There was a lot of water on the imaginary planet but no fish. We never saw fish in the water. We never saw the local people fishing.

Here on Earth, more than half of vertebrate species are fish. How come the planet portrayed in Avatar didn’t have any?

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Folks:

It will soon be our busy season for helicopters tours over Boston. I’d like to find some software to assist with online scheduling. Here’s what we need to do…

1. select some 2-hour blocks of time when we expect the weather to be good and the Red Sox and Harvard University not to be playing (in which case flight restrictions are in effect)
2. allow the public to come and schedule themselves into a block, ideally typing in number of seats desired and passenger weights
3. cut off registration for a block once a certain number of seats have been reserved
4. if we have to cancel because the weather turns ugly, allow us to spam the folks who signed up to let them know that they need to return to the site and pick another block of time

It would be ideal if this were a free online service that could be adapted. Our second choice would be a paid online service. Third choice would be some sort of open-source tool that we could install and run.

Thanks in advance for any suggestions.

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Readers of Paul Krugman’s New York Times column will be interested to read this New Yorker magazine profile of the economist. Here are the items that jumped out at me:

• Krugman is childless, but he and his wife have two cats.
• Krugman was a passionate supporter of John Edwards in the 2008 Presidential election.
• Shortly after 9/11, Krugman was quick to blame airline-funded airport security operations for the tragedy, saying that the federal government should have been screening passengers because the airlines were too stingy. I.e., he may be considered the founder of the TSA. Krugman did not assign any blame to the FBI, which ignored tips from simulator instructors about young Saudi men wanting to learn how to fly Boeing airliners but not how to land or take off.
• Krugman is a science fiction fan who attends sci-fi conventions occasionally.
• Krugman was rather apolitical, though a huge fan of FDR, until King Bush II ascended to the throne in 2000. Bush’s reign of incompetence enraged Krugman.
• “Krugman and Wells pulled out of the stock market ten years ago and never went back.” If literally true, they sold when the Dow was about 11,000 (higher than now) and put the money into bonds, which have gone up hugely due to plunging interest rates. This makes the married couple two of the shrewdest and most successful personal investors in the U.S.
• … and this is the most inexplicable one… Krugman’s wife teaches yoga in their Princeton house and Krugman does occasionally join the class for old people, but “avoids the classes for somewhat younger and mostly female people” (the writer makes no attempt to explain Krugman’s aversion to being surrounded by young women wearing form-fitting clothing)

The article gives a good summary of Krugman’s main work as an economist. A central idea is that there is a big economic advantage to a city or region in having an already-established industry of some sort. There is no particular reason for carpet mills to be in Dalton, Georgia but once they are there and surrounded by a cluster of skilled workers, it would be difficult for another town to compete. Someone who had taken Physics 101 might rephrase this to say that there is a lot of inertia in an economy that requires skilled workers. If Krugman is right, the U.S. economy is doomed to stagnation and Krugman’s proposals for even more massive government spending won’t help. What does it mean to have 15 million people unemployed, many of them continuously since 2008? It means the U.S. now has a cluster of people whose skills are cashing unemployment checks from the government, living off relatives, and watching TV. These skills are not likely to be valuable to a company setting up a new factory. If you wanted to get in on the expanding renewable energy market, would you rather set up your factory in a town in China where everyone knows how to make windmills, solar cells, and lith-ion batteries or in a town in the U.S. where people need to be reminded what it is like to go to work every day?

Krugman expresses sadness that stimulus spending was not increased by another $1 trillion or more. But consider how the stimulus money was spent: paying salaries and raises for unionized civil servants, such as police officers and teachers (older posting); building and repairing roads and other infrastructure. Our government workers are not especially skilled compare to their counterparts in other countries. It costs us more to build roads, bridges, and buildings than what they spend in China. Would the folks who built the infrastructure for the Beijing 2008 Olympics feel the need to come over to the U.S. and hire Americans with experience resurfacing Interstate highways? Would the people who run schools in Korea want to come over here and somehow hire Americans with experience teaching in U.S. public schools?

Krugman fans: Has Krugman explained exactly how increased government spending will in the long run build up the kinds of clusters of skilled workers that he himself says that a country needs in order to prosper? [Note that I mostly stopped reading Paul Krugman because I couldn’t understand his reasoning (October 2009 posting).]

In the same issue is an article that explains that if Krugman’s writings make you sad, you won’t get any help from psychotherapy or antidepressant medications, both of which have been shown to be ineffective.

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My mole inside the American health care system called today with a story. She was at a mid-sized hospital seeing a patient who had come into the emergency room with a heart attack. She determined that the patient needed a stent. The hospital could not put a stent in. She called a bigger hospital’s doctors-only hotline to arrange a transfer. They promised to send an ambulance within 20 minutes. After 30 minutes, they called back saying that the ambulance can’t come for 60-90 more minutes. “Every minute counts with heart attack,” said my mole. She came up with a solution that she had never tried during her years of practice: calling 911 to get out of the hospital rather than to go in. The longest part of the call was her trying to explain to the 911 operator that she was already in a hospital emergency room and needed to get someone out. When the 911 ambulance arrived they made her go with the patient to the bigger hospital. Then she had to catch a ride back to the original hospital where she was still on call.

Separately, a friend of a friend wrote up this story about going to the emergency room in Mexico. The charge for the ER visit and stitches seemed rather steep, at $900, so I’m wondering if it was a private hospital rather than a government-run one. The ambulance was cheap, at least ($60 round-trip).

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… “New Jersey Sheriff Scolded for Confronting Professor in Classroom”

Related: September 2009 posting about public employee unions and their pensions.

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