Philip Greenspun’s Weblog

On Saturday morning, I flew a helicopter sightseeing tour over Boston. The passengers were Matt, his friend Dave, and his girlfriend Shannon. Unbeknownst to Shannon, Matt’s friends and family had hung a few signs in the windows on the 52nd floor of the Prudential Center: see the photo.

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A friend visiting from Berkeley had recently completed his taxes.  As a Millionaire for Obama, he complained that he didn’t pay a very high percentage of his income in tax.  Most of his money came from dividends paid by U.S. public corporations and the tax rate on “qualified dividends” is only 15 percent, so he thought he hadn’t done his fair share for our new Washington-run command economy (and more importantly that other fatcats hadn’t paid their share).  I explained that, as an investor in these companies, his profits had already been taxed at some of the highest rates in the world (source) through state and federal corporate profits taxes.  The final 15 percent tax at the personal level was just an icing on the cake that gave the federal government close to a 50 percent share of any profits earned by a U.S. corporation.  Not to mention California state income tax at 9.3 percent.

“It should be more,” he noted.  How much more could it be before the company would move offshore?  Or stop paying a dividend and use the money to repurchase its shares (thus driving up their value for eventual cashing in as a capital gain)?  “Tax rates used to be a lot higher on guys like me,” he noted. thinking of himself as a truly rich guy.  Back in the FDR days, the top rate was indeed high, but it started at $5 million per year in annual income, equivalent to a $75 million/year salary today (AIG wages!  (source)).

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To see how various federal government economic initiatives compare in size, check out the graphic at the bottom of http://www.theatlantic.com/doc/200905/map-federal-reserve (click to enlarge and then zoom in).

[One good thing about all of this new federal spending is that it takes Boston’s Big Dig project out of the penalty box.  Having cost $15 billion and taken years longer than expected, the Big Dig was formerly one of the first things that came to mind when people wanted an example of government waste.  Now that $15 billion looks like a bargain.  The taxpayers actually got something for their money, i.e., an additional tunnel to Logan Airport and a cosmetically improved downtown.]

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I can’t figure out why we pay $500 billion per year in taxes to support our military and yet American ships are subject to piracy off the coast of Somalia. In a city where things have gotten out of control, the military imposes a curfew and shoots anyone who is found out on the street after dark. How come the combined military forces haven’t imposed a curfew on this stretch of the ocean? Legitimate merchant ships would register at www.iamnotapirate.com. Instead of expensive and slow destroyers, the military would use cheap and fast AC-130 airplanes. If the airplane crew saw a suspicious-looking and unregistered boat, it would sink it with a few rounds from 4000′. It is a big area and presumably they’d miss some, but you’d think a 10 percent daily chance of being sunk would be enough to deter any unauthorized vessels.

A simpler idea would be to impose the curfew on boats going in and out of Somali ports.  Restrict unregistered boats to within 6 miles of the beach.  Fly two AC-130s in opposite directions up and down the coast, approximately 10 miles offshore, sinking any suspicious-looking and unregistered boat.

An argument against this approach is that these are international waters, traditionally open to all.  However, these are extraordinary times.  What is wrong with saying these international waters are going to be open only by permission of a group of navies? International waters are already subject to some restrictions.  One cannot drive up alongside a battleship in the open Atlantic.  Why can’t a battleship say “I am operating near Somalia for a while and I don’t want any uninvited company?

What’s wrong with the curfew idea?  Must we really continue to (1) pay 5% of our GDP to support our military, and (2) simultaneously read every day about our ineffective struggle against Somali teenagers?

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Here’s an idea for Sunday…

If you’ve ever wondered why that expensive Italian “extra virgin” olive oil didn’t taste so great, recall the recent New Yorker magazine story where it was revealed that bottles labeled “Italian olive oil” are most often Turkish hazelnut oil mixed with some other stuff.  Stop at Formaggio Kitchen in West Cambridge to pick up a three-liter box of real olive oil.  This “Arbequina D.O.P. Siurana” oil comes from Spain, where they haven’t figured out the hazelnut oil trick yet, and is in a box with an internal plastic bladder, like box wine.  This keeps the oil from going slightly rancid after the container is opened (oil from an opened bottle, even if stored in the dark, tends to change in taste after a week or so).  The box is cardboard, so it protects the oil from light even if kept on the counter.  The cost is $50 for three liters, about the same as other good olive oils.  [If you don’t live in Boston, you can get similar oil at Whole Foods in a 0.5L glass bottle for about $15.  Look for the “Unio” brand. To find the boxed olive oil in your region, check the importer’s Web site, miguelvalentino.com]

Continue west on Route 2 to Lincoln, Massachusetts to the Gropius House.  This was supposedly the greatest suburban house built in the U.S. in the 1930s.  The architect was such a genius that it cost 4X as much per square foot to build as the average American house and consequently… had virtually no influence on how houses in the U.S. were built going forward.

Have a sandwich at Verrill Farm in Concord for lunch.

To see what happens when an architect who understands construction methods and costs builds a modern house, visit an open house at One Hawk Hill Road (web site; Boston Magazine article), from 1-3 pm (Sunday, April 19).   The architect is selling the place himself, so he’ll be on site to explain how things were made.  It is a beautiful light-filled 4 BR house with balconies off the bedrooms.  It is just off Conant Road and Old Conant Road, one of the nicest neighborhoods in Lincoln, and across the street from Valley Pond, which has a swimming beach and boating club.

Turn left from Conant Road onto Route 117 and Dairy Joy is on your left for soft ice cream, hot dogs, and other delicious junk food (high prices; no public restroom).

 

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On Friday I went up to Concord, New Hampshire for my Helicopter ATP and CFII checkrides with the FAA’s designated examiner, Joe Brigham.  The Airline Transport Pilot certificate, which I already have for airplanes, is required for the captain of a huge helicopter used in scheduled air carrier service, and tests one’s ability to fly precisely solely by reference to instruments.  The CFII enables one to teach helicopter instrument students, a much calmer environment than teaching primary helicopter students.

I had prepared for the checkride by practicing instrument flying while wearing a hood, to simulated cloudy weather, and doing some moderately crazy maneuvers such as autorotations under the hood (simulating an engine failure in the clouds).

After 3.7 hours of flying, mostly under the hood, I was feeling moderately heroic.  Joe had chosen the New England airport with the bumpiest weather that day, winds gusting to 26 knots over the nearby hills and mountains.  There were 1000 foot-per-minute updrafts and downdrafts at times.  Somehow I didn’t manage to scare Joe too badly, exceed any aircraft limitations, or wander outside of the ATP standards (+/- 50′ of altitude), so I came back with two temporary certificates in my wallet.

Once back at Hanscom Field, I decided to linger and prepare the helicopter for a friend who would be doing a night flight.  I had removed the left seat controls for the solo flight back from New Hampshire and was reinstalling them when a retaining pin for the cyclic handle slipped out of my hand, fell on the floor, and rolled into a hole behind the left seat’s right antitorque pedal (something that had never happened to me in five years of flying helicopters).  Now the dual cyclic could not be installed and who knew whether the loose pin in the belly would interfere with anything critical.  I grounded the helicopter, reflecting on Dirk Laukien’s observation that “pilots are notoriously stupid.”  Then I noticed that the Gulfstream G-IV with which we share a hangar had its door open.  I found Duane, the mechanic who lives with the Gulfstream, and asked him if he could think of any clever way to get the pin out.  Duane brought out a magnet on a stalk and tested it with the pin from our other R44 to confirm that the pin would stick to the magnet.  Then he slid the stalk into the hole behind the rudder pedal and came back up with the pin seconds later.

I’ve added myself to our helicopter instrument rating page.  I probably should ground myself from monkeying with the removable controls, though…

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… turns out to be $100,000 per hour. Here’s an ABC News story about the U.S. military trailing a potentially hostile Cessna 172 (weighs less than an old VW Beetle) coming in from Canada.  The plane was tailed by two F-16 fighter jets for five hours and we evacuated the Wisconsin State Capitol building.  The article notes that each F-16 costs $50,000 per hour to operate (remember that this is a single-engine airplane whose acquisition cost is half that of a Gulfstream; let’s not ask what it will cost the USAF to operate the new F-22 fighter jet!).

I’m surprised that the F-16s were able to stay aloft, especially at such a low (fuel-inefficient) altitude, for so long.

The real story here is probably what we can expect as the government takes over ever larger sectors of the economy.  Suppose that an average citizen had decided to intercept and follow a Cessna 172.  He or she would have hopped in a Mooney or a Bonanza, both substantially faster than the 172, and spent $100 per hour on gas and overhaul reserve.  When the government tries to accomplish the same task, it does a more thorough job (2 planes, armed), but it costs 1000 times as much.

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Two economists published an op-ed in today’s Wall Street Journal, “From Bubble to Depression?” that is interesting because it purports to explain why the housing crash wrecked the U.S. economy whereas the dotcom crash did not.  One interesting portion of the article recalculates the U.S. inflation rate during the housing bubble, using actual costs for purchasing real estate rather than “owners’ equivalent rent”, a fictional concept introduced by government bureaucrats trying to keep the published CPI low.  Inflation calculated using the costs that buyers faced would have been 6.2% instead of the published 3.3% for 2004.  The authors point out that consumer interest rates were about 6% and inflation was about 6%, which made money free for consumers and they borrowed.

What solutions do these megabrains of Economics (one of whom has a Nobel in Economics) offer for our current mess?  None!

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The April 1, 2009 New York Times carries a story “Doctors Opting out of Medicare” that finds that only about 40 percent of medical doctors at a New York City hospital would accept Medicare reimbursement.  The remaining 60 percent were able to earn more money by taking patients who paid cash or had private insurance.  The article fails to mention the fact that U.S. has fewer physicians per capita than other developed countries (the OECD average was 3.1 per 1000 residents; the U.S. has about 2.4; France has 3.3; Israel has 3.8).  The U.S., despite our recent bout of attempted national economic suicide, has a tremendous amount of personal wealth.  What do you get when you combine wealth with a limited supply?  High prices.  State and federal governments are pushing forward various schemes to increase the number of Americans covered by health insurance, thus increasing demand for health care.  The supply of physicians, however, is already extremely tight.  Any attempt by the government to offer compensation below a market-clearing level will result in physicians opting out and saying “I’m only going to work for rich people who pay cash and/or pay a lot more than their standard insurance reimbursement.”

Decades of immigration to the U.S. and the resultant population explosion (from 200 million people during the 1970s to more than 300 million today) have not been matched by an explosion in the number of medical schools or the size of med school classes.  This means that virtually all health care cost control measures, short of sending American patients to Europe or Cuba for treatment, are doomed to fail.

The U.S. government controls how much is paid for more than half of American health care dollars spent, but the American Medical Association (doctors’ union) controls how many doctors will be licensed to practice in the U.S.  Unless we can somehow revoke the laws of supply and demand, we’ll probably have to spend a dramatically higher percentage of GDP if we want the currently uninsured to enjoy comprehensive medical care.  We’ll have to pay existing doctors enough that they’ll be happy to work 6 or 7 days per week.

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The May 2009 Atlantic article “The Quiet Coup” by Simon Johnson, an MIT Sloan professor, has strong echoes of the April 2009 Harper’s magazine.  The Harper’s author noted that financial firms took home roughly 40 percent of U.S. corporate earnings, which drained all of the smart people out of the manufacturing economy and into paper shuffling.  The Atlantic article says that banana republics get into trouble because “powerful elites within them overreached in good times and took too many risks” (echoes of Mancur Olson).  “inevitably, emerging-market oligarchs get carried away; they waste money and build massive business empires on a mountain of debt. Local banks, sometimes pressured by the government, become too willing to extend credit to the elite and to those who depend on them. … In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). .. elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse.”

“From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.”

“Big banks, it seems, have only gained political strength since the crisis began.”

“Treasury is trying to negotiate bailouts bank by bank, and behaving as if the banks hold all the cards—contorting the terms of each deal to minimize government ownership while forswearing government influence over bank strategy or operations. Under these conditions, cleaning up bank balance sheets is impossible.”

“Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerful—letting them take things, legally and illegally, with impunity.”

More: read Quiet Coup”

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