Philip Greenspun’s Weblog

Barack Obama’s Aunt Zeituni is back in her taxpayer-funded apartment in Boston (Globe story).  Massachusetts taxpayers have been paying her rent for nearly 10 years and must now also pay their share of a federal immigration judge’s salary for a hearing on April 1.  Judges ordered Aunt Zeituni to leave the U.S. back in 2003 and then again in 2004.  The conjecture is that Aunt Zeituni will claim that she is entitled to asylum because she would be imprisoned, tortured, or otherwise mistreated if she returned to Kenya to live legally.  It seems like a tough claim to make when one’s nephew is the most powerful man in the world.  Would the Kenyan government antagonize a guy with nuclear weapons at his command in order to oppress a “frail-looking woman in her late 50s who walks with a cane”?

Aunt Zeituni’s case raises the question of what we’re getting for our tax dollars in terms of immigration enforcement.  For five years following her final order of deportation, Aunt Zeituni has lived under her own name in a government-owned apartment.  If the Department of Homeland Security couldn’t escort her to Logan Airport and wish her bon voyage, why are we paying their thugs?

Full post, including comments

G.M. and Chrysler are asking the politburo in Washington for more rubles (nytimes).  Between the 25 percent tariff on imported light trucks (SUVs) and direct cash infusions, it seems likely that the U.S. taxpayer is being bled to the tune of $100 billion over a 2-3 year period.  What does the taxpayer get in return for this money?  The right to continue to purchase GM and Chrysler vehicles for $20,000-60,000 each.

What else might we do with $100 billion in this industry?  Assuming that we could get a wholesale price of $2000 per car, that’s enough to buy 50 million four-passenger 54 mpg Tata Nanos.  The fuel savings from driving Nanos to the 7-11 instead of monster SUVs would save taxpayers $100 billion every year (i.e., the initial investment in the Nanos would be paid back with one year of fuel savings).  Current predictions are that the U.S. car/light truck market may shrink to 10 million vehicles per year.  Thus with a $100 billion federal expenditure we could give everyone who had intended to buy a car or SUV a free Nano for the next five years.  Fifty million American households that had expected to go into debt and make monthly car payments would now have $400 extra every month to buy other things ($240 billion per year).  The total amount free for investment in the U.S. economy would be $340 billion per year.

[Note: fuel savings are based on 12,000 miles per year driven.  The Nano uses approximately 1000 gallons less than a 10 mpg SUV.  With gasoline at $2/gallon, that’s $2000 per Nano per year.]

Full post, including comments

At a birthday dinner for an economist a couple of nights ago, some folks were joking about how the financial collapse of 2008 proved that free markets don’t work.  It certainly sounds reasonable to say that we need more regulation.  It is worth remembering, however, that most participants in the financial markets were public corporations, which are chartered and regulated by the government in such a way that the long-term interests of shareholders are almost certain to be ignored.

In the old days on Wall Street, market participants were either individuals or partnerships.  The people making the decisions had their long-term wealth at risk.  By 2008, however, the big firms had become public corporations.  The decisions were made by managers who were, in theory, supposed to act in the best interest of the owners.  As discussed in my economic recovery plan, however. shareholders have no voice in how a public company is run.  The existing management and Board nominates any future Board members.

Managers of the Wall Street firms that melted down had voted themselves particularly generous compensation structures.  If they placed big bets that resulted in huge profits, they would take home billions of dollars for themselves.  One risk of any big bet, however, is that it will result in a huge loss.  The Wall Street firms had no provision for a clawback.  An employee such as Stan O’Neal made $50 million per year while loading up Merrill with mortgage-backed securities and then was able to retire to his mansions and jets after he’d basically bankrupted the firm.

The meltdown occurred roughly 10 years after the completed conversion of America’s big investment banks from partnerships to public corporations.  The Federales are now rushing to craft new regulations.  According to Geithner’s testimony before Congress,

“The new rules must be simpler and more effectively enforced and produce a more stable system, that protects consumers and investors, that rewards innovation and that is able to adapt and evolve with changes in the financial market.”

Eric Falkenstein asks “When was the last time government implemented regulations that met these criteria?”  A money guy friend said that a better question was”When was the last time government implemented regulations that met any of these criteria?”

Given our country’s rules regarding public company governance and the fact that Wall Street is dominated by public companies, is there a realistic hope for stability?  What would any of us do if we had the chance to make $100 million per year by taking a 10 percent risk that our employer and its shareholders would be wiped out?

A free market in which participants risked their own money might work quite well, but that’s not what we tried.  We had a market in which participants risked other peoples’ money and pocketed much of the upside but suffered no downside risk, all made possible by the government’s regulating away public company shareholder power.

Full post, including comments

It would be nice if modesty prevented me from linking to this Fox TV news story in which I am (briefly) interviewed.

Full post, including comments

This New York Times story on the strip-search of a 13-year-old girl, now the subject of a Supreme Court case, interviews a lot of folks on the subject of whether it is reasonable to humiliate an honors student denounced by a classmate.  The school “suspected her of having brought prescription-strength ibuprofen pills to school. One of the pills is as strong as two Advils.”

Nowhere in this story is the humble taxpayer mentioned.  People who are struggling to feed their families, who have been laid off from their jobs, or who work double shifts are being taxed to pay government employees to search 13-year-olds for Advil.  (A Google search for “ibuprofen abuse” reveals no situations in which anyone was able to get high off Advil, a drug much more likely to appeal to senior citizens in any case.)

We couldn’t afford the wars on marijuana, heroin, or cocaine.  Now we are going to be taxed for a war on Advil?

[Note:  my economic recovery plan proposes abandoning the war on drugs.  It never occurred to me that the war had gotten this deep.]

Full post, including comments

In June 2003, I wrote “The Chinese Car”, asking what would happen to the U.S. economy when a perfectly functional car could be purchased for between $2000 and $3000. The posting predicted that we’d have our inexpensive car some time between 2013 and 2023. It looks as though 2013 is more likely than 2023 and that India will be the source rather than China. See http://wheels.blogs.nytimes.com/2009/03/23/tata-nano-launched-in-mumbai/ and http://www.cnbc.com/id/29841926 . Tata has delivered the Nano, for $2200, and only six months late, despite having had to relocate its factory.

[The cheapest Chinese cars right now sell for about $5000.]

Full post, including comments

On Friday evening I visited a friend at Howard University Medical Center, near Capitol Hill in Washington, D.C.  The neighborhood isn’t the best so I brought my Canon EOS 5D Mark II into the hospital rather than leave it in the car.  This set off a three-alarm security emergency involving multiple guards and a senior hospital administrator.  “We can’t have cameras in the hospital because of patient privacy.”  Could I leave the camera with them?  “We can’t be responsible for your camera and won’t accept it.”  How about mobile phones?  Were they allowed in the hospital?  “Of course,” the senior administrator responded.  Don’t all mobile phones these days also have cameras and oftentimes video?  “Yes.”

Here we have a business apparently determined to prevent anyone from coming in and photographing patients.  Yet they haven’t figured out which of their rules they need to change in response to the phenomenon of camera phones, devices that appeared nearly 10 years ago.  They’ve stuck with their paper records in filing cabinets, writing with magic markers on whiteboards in patient rooms, and other manual procedures.  The U.S. government is now telling this hospital that they need to adopt some of the world’s most complex software.  A university hospital in the Boston area, considered one of the most sophisticated in the world, recently spent $60 million on a new IT system from Cerner, a market leader in the field.  So far the results have been disastrous, despite the fact that all of the personnel were accustomed to using an electronic medical record system (home-grown starting around 1990).

The enterprises that have been the most successful users of IT have been the best-managed enterprises, such as Walmart.  Hospitals don’t have the same competitive pressures as Walmart and historically have not worried as much about management or efficiency.  If they have resisted computerization, perhaps it is because they had a good idea of what their organization could handle.

This March 17, 2009 Washington Post op-ed makes the same point: “Bad Bet on Medical Records”.  What do folks think?  Will this be a waste of $50 billion?

Full post, including comments

College students have been emailing me plaintively for months, but I couldn’t decide if I was going to repeat my summer aviation intership for 2009.  I have decided that I am going to accept a summer intern and teach him or her how to fly.  The internship work will be mostly videography and video editing, so if you know someone who is skilled at communicating with video and wants to learn to fly, please direct him or her to the aviation summer internship 2009 page.

Full post, including comments

In the fall of 2008 as the U.S. government was helping out one company or another, an appropriate term for each government action seemed to be “bailout.”  The scale and number of bailouts, however, seems to have grown to the point that I wonder if there isn’t a better way to look at what our government is doing.  “Time travel” or “simulation” seems more apt.

Mancur Olson divided the economy of the late 1970s into fixprice and flexprice sectors (more).  The U.S. government is dividing the economy into CruelPresent and Circa2006 sectors.  If you live in the CruelPresent sector, you lost money on your house, you lost your job or your pay was cut, your retirement funds have been devastated.  Thanks to  multi-trillion dollar simulation, however, a large sector of the economy lives in Circa2006.  People in this sector did not lose money on their house (mortgage rewritten) or mortgage-backed securities (propped up by Feds or guaranteed by AIG (itself propped up by the Feds)).  People in the Circa2006 sector still have their job at the same salary, might receive a fat bonus for work done in 2008 (even if employer went insolvent and required government takeover), and have retirement funds that are in great shape, perhaps guaranteed by a municipality.

Who lives in the simulated 2006 world?  AIG employees and customers, government employees, health care industry, car makers and parts suppliers, certain homeowners, most of Wall Street.  Who lives in the CruelPresent?  Retailers, such as Circuit City, contractors and developers, prudent savers and borrowers, renters, factory workers outside of the auto industry, design engineers, graduating college students.

What will it cost to keep half of the U.S. in a simulated world where the housing crash never occurred?  It could be much more expensive than we think because the goal has shifted.  We started out trying to prop up a few companies for a few months.  Now we are committing to maintain a permanent parallel simulated financial universe in which half of America can dwell.

Full post, including comments

Yesterday the Federal Reserve announced that it was going to purchase $1 trillion in long-term Treasury bonds and government-guaranteed mortgage-backed securities (source).  The money used to purchase these obligations will be created electronically.  How can we understand this?

Consider Zimbabwe.  The government there can’t raise enough tax revenue to pay its expenses.  The government there can’t borrow from foreigners at attractive rates and certainly can’t borrow in its own currency.  How does the government pays its bills, then?  Zimbabwe’s government goes to Germany and contracts with a printing company to create some local currency, which it then hands out to government workers and contractors.  The result was that the Zimbabwe local currency became worthless (source).

Let’s return to the U.S.  Our government can’t raise enough tax revenue to pay its expenses.  Despite skepticism from Chinese investors, we can still borrow money in our currency.  We take money today from investors and issue them a long-term Treasury bond, a promise to pay them back sometime between 2019 and 2039.  Our government uses the money from the bond sale to pay employees, pensions, and contractors.  Until yesterday, we were spending our grandchildren’s tax dollars.

The Fed steps in and buys long-term Treasury bonds from whoever is currently holding them.  The government has thus effectively purchased its own obligation using newly (electronically) printed money.  This new money competes with money that people (a.k.a. “the chumps”) had been saving.  The government is indirectly spending money that people were saving in bank accounts, money markets, and other cash equivalents.

How is this different from Zimbabwe?  They did their printing in Germany.  We do ours inside a computer at the Fed.  Zimbabwe paid printing charges.  The U.S. government pays Wall Street commissions:  an investment bank collects fees when the Treasury bond is sold to a customer and then probably collects some more fees when the same bond is sold back to the Fed.

Full post, including comments