Philip Greenspun’s Weblog

The Justice Department has approved the merger of XM and Sirius satellite radio (story). That leaves the Federal Communications Commission as the last line of defense for consumers. The main argument that the Justice Department used to grant these folks a monopoly on satellite radio is that it isn’t a monopoly on music. A person could use an MP3 player, listen to standard AM and FM stations, or hire a violinist to sit in the back seat of his or her car.

What has been lost in the press coverage of this event is that XM and Sirius are the only companies equipped to offer nationwide data broadcast services. Each 64 kbps data stream could be used for a music channel or to broadcast aviation weather, traffic jam information, or any other data important enough for people to pay. These data channels are more lucrative than the music channels. Aviation weather costs $50 per month for one channel, none of which need be paid out as a royalty because the information is all provided free by the federal government. Traffic information is $10 per month for one channel. Music costs about $13 per month for 100 channels.

Will there be any hope of competition once the merger goes through?  The mobile phone networks don’t provide adequate coverage for many uses, such as aviation.  The cost of launching new satellites would be prohibitive and any new entrant to the market would have to content with the fact that XM/Sirius has exclusive agreements with popular sources such as Howard Stern, NPR, and various sports leagues.  Our government, saddled with a $3 trillion bill for making Iraq safe for Iraqis, seems unlikely to attempt any kind of public wireless Internet.

I predict that the cost to consumers of this merger will be at least a doubling of the long-term rates paid for data provided via satellite.  That will discourage a lot of people from signing up for traffic information, which will lead to less efficient use of our road network, thus increasing our consumption of oil from countries that hate us, thus increasing our military expenditures to keep those countries under our thumb.  CO2 emissions and other forms of pollution will also be increased.  Work time will be lost as Americans are stuck in traffic, thus reducing our GDP and our competitiveness with more efficient countries.  In the air, the high price of weather already keeps a lot of pilots from subscribing; the $600/month is nothing for jet owners, but is about equal to the cost of insurance or maintenance on an old Cessna.  There will be some additional deaths each year due to people flying into bad weather that they could have learned about.

[These are also sad times for audiophiles.  With XM and Sirius competing, there was some hope that eventually one would offer improved audio quality on at least some stations.  With the two combined, it will be “any quality you want, as long as it is the muddy sound from 64 kbps and the CODEC that we designed in the late 1990s” (compare this to the 128 kbps of a standard MP3 stream or 192 kbps for a somewhat better MP3).]

If we must give a company a monopoly on satellite audio, it is a shame that the Federales didn’t say “You can have your radio monopoly, but you have to carry at cost any data that touches on public safety or environmental quality.”

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The indirect route from Boston to Cincinnati goes right by Frank Lloyd Wright’s Fallingwater.  We stopped for a visit today.

The house was commissioned in the mid-1930s by Edgar J. Kaufmann, owner of a big Pittsburgh department store and passionate about preserving and enjoying the mountains southeast of the big city.  According to his biographers Wright hated Jews. Ironically, however, he did his most famous works for Kaufmann and Solomon Guggenheim (the museum in New York).  Kaufmann approached Wright with a budget of $50,000; the house eventually cost over $150,000, making it roughly 15X more costly per square foot than conventional architecture of the day.

According to an exhibit in the cafe (excellent), Wright did not specify adequate structural strength for the famous cantilevers of Fallingwater, but fortunately Kaufmann independently engaged a structural engineer who slipped in a vastly increased quantity of steel reinforcement.  If not for Kaufmann and the engineer, Fallingwater would have fallen into the water many decades ago.  (When Wright found out about the extra steel, he was enraged, but eventually things were patched up.)

The house itself is fairly small by current standards, about 2500 square feet of interior space.  The only room that seems spacious is the livingroom/diningroom.  There are windows everywhere, but Wright forgot to put in screens, which must have made the place miserable during mosquito season.  All of the other rooms and passageways are far too small for contemporary humans, whose tall stature would have them hitting the ceilings and whose obese bodies would barely fit through doors and halls.

According to the tour guide, Frank Lloyd Wright wanted the entire house covered in gold leaf.  Kaufmann balked at the cost and, perhaps, the ostentation at a time when most of his countrymen were still suffering from the Great Depression.  The house ended up being painted more or less the color that you see today.  It was interesting that Wright, so far ahead of his time in many areas, was apparently able to predict the hip-hop aesthetic.

We also visited Kentuck Knob, a beautifully crafted 2200 square foot house on a nearby hilltop.  This was built in the 1950s at a staggering-for-the-time cost.  The house has a lot of interesting angles and great lighting.

Both houses are well worth visiting if only to see what it might look like if we put a lot of care into designing houses.

What struck me after touring these Wright monuments is the same thing that struck me after visiting the Gropius house in Lincoln, Massachusetts.  How come none of these ideas are available in 99 percent of houses being built today?  Wright did great things with corners and interesting polygonal shapes for rooms.  Developers build houses where each room is a big rectangular box.  Wright did interesting things with indirect lighting.  Developers build houses where each room has a light in the center of the ceiling.  If the ideas of the modern architects are so great, how come virtually no home builder has found it economic to implement any of them?  It might add a few percent to the cost of construction to build things in a Wright-esque manner, but they could potentially sell at a 20 or 30 percent premium if buyers valued the design.

Is the conclusion that buyers don’t value this kind of design and that we all want to live in a standard colonial house?

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A friend said the other day that a lot of economists were worried that the U.S. was becoming like Japan in the 1990s, with burst stock market and real estate bubbles and slow growth despite near-zero interest rates.  I replied “Yes, we could be just like Japan, but without the obsession with quality, reverence for craftmanship, strong work ethic, high achievement in math and science, and low crime rate.”

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Some interesting facts from this story about the new presidential helicopter:

• each of the 28 helicopters will cost $400 million, more than a Boeing 747 tricked out to serve as Air Force One
• the contract was awarded in 2005 and the first helicopter will be delivered in 2010, despite the fact that these are basically EH101s, a design first flown in 1987 (the Chinese could probably build 10 cities for 5 million people each in the same five year period)

What would be truly incredibly would be a president of the U.S. staying at his or her desk in the White House so that 28 helicopters were not needed…

[Note that this is the same contract that stirred up a lot of shock and horror at Sikorsky when it was awarded.  Every preceding Marine One helicopter had been designed and built in the U.S.  Note further that the actual mission of Marine One, transporting a few people from the White House to an airport, could be accomplished with a handful of Robinson R44s, the price of which was raised this year to $320,000 (most are sold overseas).  The Robinson doesn’t have the same anti-missile defenses as the monstrous EH101, but on the other hand it presents a much smaller RADAR target and also a much smaller heat signature (one piston engine instead of three massive jet engines).]

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Just finished listening to Infidel by Ayaan Hirsi. Here are some highlights…

Growing up in Somalia in the 1970s was tough due to political turmoil and a war with Ethiopia. Hirsi’s father was jailed as an anti-Communist, so she was reared mostly by her mother and grandmother. While her mother was away trying to earn a black market living for the family, the grandmother brought in a traditional Islamic circumciser to cut off/out Hirsi’s genitals and those of her sister. This is a truly horrifying part of the book. A newspaper account of female genital mutilation, written by a comfortable western journalist, soon to return in an air-conditioned Land Cruiser to the Hilton, doesn’t have the impact of a personal account. The girls were aged 6 and 4, held down by female relatives, sliced into with scissors, then sewed up and left with their legs tied together for a week so that they would form enough scar tissue to serve as a chastity belt. There are the inevitable infections.

Eventually Hirsi’s father escapes from prison and over the border to Ethiopia. The mother refuses to live among Christians in Ethiopia and hence the family agrees to reunite in Mecca. Saudi Arabia proves to be incredibly hot, even by Somali standards, and much more violent. Every day in the main square there are beheadings, hands being cut off, women being stoned. In the evening, the sounds of women being beaten by their husbands drift over into the Hirsi house. The Saudis refer to the Somalis as “slaves” (black slavery was common in the Arabian Peninsula until the 1930s) and curse unseen Jews every time anything goes wrong, e.g., a the failure of a window air conditioner.

The family returns to Africa , but the violence does not abate. Hirsi’s family engages a traditional Koran instructor, who forces children to memorize the Koran in Arabic, even if they don’t understand any Arabic. Hirsi resists this form of instruction and the instructor bangs her head against the wall so hard that she nearly dies from a fractured skull and brain trauma (fortunately this happened at a time when Nairobi had an excellent hospital; an Italian surgeon saved her life). Somalia breaks down into civil war, with violence among clans and races. Racism is much more extreme and more violent than in the U.S., despite the fact that all Somalis have dark skin.  Somalis recognize a variety of distinct races based on general appearance and a hierarchy of worth among those races. The superior races look down upon the inferior as unworthy and, to a large extent, subhuman.

Women were subject to arbitrary violence if they lost the protection of male relatives. A woman on her own in a refugee camp would be raped, often suffering fatal injuries. A woman who became pregnant out of wedlock would be shunned by fellow Muslims, grabbed on the street by passersby, denounced as a harlot, and often killed by her father or brothers.

Hirsi is fortunate to get a job with the United Nations. They were taking Western donor money and putting it into rural telephone service. Unfortunately, as soon as the copper wire was laid down, Somalis would rip it up and sell the wire. The government did not function any more efficiently, according to Hirsi. Civil servants had contempt for anything “white” or “Christian” and their primary concern was how to transfer government money into their own pockets.

Hirsi’s father marries her to a cousin whom she has met only once and disliked. She is supposed to meet this cousin in Canada, where he lives, and travels to Germany to await a Canadian visa. Once there, she runs away to Holland and declares herself an asylum-seeker. She lies about her name, so that her family will have more difficulty finding her, and lies about her story, since being married to an oaf does not meet Holland’s legal requirements for asylum.

Hirsi eventually gets Dutch citizenship, enrolls as a college student, and finds ample work as a Somali/Dutch translator. Her translation work puts her in contact with a lot of immigrants and she eventually begins to notice a trend: Muslim men are involved in a tremendous amount of violence and crime, much of it directed against their wives. September 11, 2001 finds Hirsi working with some well-meaning Dutch labor party researchers. Their immediate reaction is to tell her that “Islam is a religion of peace and we know that Muslims don’t support this.” The TV station segues into coverage of local Muslim communities around Holland and the rest of Europe celebrating the success of the World Trade Center attack. Hirsi responds to her colleagues that she has memorized the Koran and, in fact, the “peace” in Islam is reserved for Muslims and Muslim communities. Infidels are supposed to be killed, according to Hirsi’s reading of the Koran.

Contrasting the peace, order, education, and prosperity of Christian Holland with the violence, disorder, ignorance, illiteracy, and poverty of all of the Muslim countries she has known, Hirsi begins to question the value of Islam for women and the truth of Islam. She becomes an atheist, but knowing that atheism is a capital offense under Islamic law, tries to keep her loss of faith to herself.

She probably should have kept a bit more to herself; after a few TV appearances and public lectures, Hirsi has accumulated so many threats to her life that she requires bodyguards. Things really heat up during the Muslim riots in Nigeria over whether the Miss World contest was un-Islamic and a newspaper editorial that suggested that Mohammed might have chosen a wife from among the beauties. Hirsi publicly discusses the controversy and agrees with the editorial, citing texts about the prophet’s life that report his finding certain women attractive. It is not clear what the relevance to the discussion is, but Hirsi cites the prophet Mohammed’s marriage to a 6-year-old girl (Aisha), which was consummated when the wife turned 9 years old. Mohammed was 54 years old at the time and the image of him having sex with a 9-year-old was not a piece of Islamic scholarship that local Muslims wanted brought before the Dutch public. The death threats intensified and Hirsi ended up with one of the most expensive security details in all of Holland.

In Holland, a country of 16 million, politics are much more like those of a U.S. state than comparable to the U.S. national politics. With just a few lucky connections, Hirsi ends up being asked to stand for parliament under the banner of the Liberal party (she says that we would regard these guys as socialists, but in Holland they are what passes for the party of business). While the threats to her life are building, she runs in the election and wins a seat. She concentrates on changing conditions for Muslim women living in Holland, attempting to dismantle state-funded Islamic schools for a start. Hirsi strove for the education of women and the right of women to leave the house and work. Her contention is that Muslim boys grow up seeing their mother being beaten constantly and that makes them more likely to resort to criminal violence as adults. Her legislative agenda included trying to keep girls from getting “excised” on kitchen tables in Holland, and helping immigrants integrate more with conventional Dutch society. Hirsi insisted that the government track the number of Muslim girls who are killed by their brothers and fathers to protect the family’s honor (it turned out to be a number that shocked the Dutch public).

Hirsi is eventually forced out of her house by lawsuits from neighbors, who argue successfully that her presence is a threat to their security and property values. She gives up her seat in Parliament and relocates to a think-tank in the United States.

The End.

————-

Although Hirsi makes headlines for her conflicts with folks in Europe, for me the most interesting part of the book was about her early life in Somalia and neighboring countries. It would not be easy to walk a mile in her childhood and teenage shoes.

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This one is for folks graduating from college in 2008…

The 2007 calendar year was one in which America’s financial system more or less collapsed, though we didn’t realize how thoroughly until early in 2008.  It was also a year in which Wall Street paid out record bonuses, a total of $38 billion at just a handful of banks (source).  One of the firms that paid out $billions, Bear Stearns, essentially went bankrupt last week, but is being bailed out at taxpayer expense (story).

It has gotten to the point where only a fool would refrain from high-risk bets at any large Wall Street firm.  If the strategy randomly succeeds, the bankers can transfer $billions into their personal checking accounts as bonuses for a job done well.  If the roll of the dice isn’t favorable, some $billions in compensation can probably still be extracted while the general public absorbs the loss through taxes.

[I had my own interaction with Bear Stearns in January 2008.  One of their brokers had figured out that I was semi-rich.  He sent me an email:

“I wanted to first of all wish you congratulations, and hope that you have a moment to learn about our team here at Bear Stearns. Our group specializes in working exclusively with founders and corporate executives who go through liquidity events.

“From your resume, I have seen the previous accolades and imagine that at some point you have utilized someone to guide you through one of these transitions.  However, this also may be a good inflection point where Bear Stearns could act as a good conduit as 2007 has ended and you have sold another business venture where liquidity is created.”

This was shortly after two Bear Stearns hedge funds blew up, wiping out 100 percent of the $20 billion that investors had pledged to their care. Bear Stearns itself had pocketed $billions in fees from these investors in the preceding few years, so all was not lost, but being a Bear Stearns client didn’t seem like a good way to beat the index.  My reply:

“Thanks, but I think I did a lot better than Bear Stearns did for its customers last year.  Because I wasn’t smart enough to choose or run a hedge fund, I had my money parked in boring Vanguard funds, mostly index funds.”

]

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Recession is upon us, economists seem to agree, and now we need only discuss how to get out of it.  One popular solution is to cut interest rates and print money.  That has worked in the past for most of the U.S., but it did not work for Rust Belt states and cities such as Michigan, Cleveland, and Buffalo.  The Rust Belt was unattractive to new business investment due to its high labor costs, high taxes (many of which were necessary to pay for commitments made decades earlier, either bonds or pensions for public employee unions), and inner-city crime (Detroit).  Companies did invest the newly printed money, but they invested it in other regions of the U.S.

The Federal Reserve Bank is cutting interest rates, printing money, and ladling out the public’s cash to mortage speculators.  When folks get their hands on this money, will they invest it in things that will cause the U.S. GDP to grow in the long run?  Consumers will buy stuff, presumably manufactured items made in China or oil from Venezuela and the Middle East.  Companies will invest some of the money, but presumably where they think it is most efficient to invest.  In the old days, U.S. companies nearly always invested somewhere in the U.S.  China was closed to foreign investment.  India was tangled in bureaucracy and regulations.  South America was unstable politically.

How does the U.S. stack up right now as a place to invest?  Our workers are expensive because the cost of living here is high and their taxes need to be high enough to pay for a lavish government sector and an Iraq adventure that Joseph Stiglitz estimates will cost $3 trillion, a sizable fraction of our annual $14 trillion GDP.  Our college graduates are roughly equivalent in ability to other nations’ high school graduates (story) and a lot of our high school graduates could not compete on the world market for any jobs other than manual labor.  Our transportation system is comprehensive, but traffic jams can take an hour or more out of a worker’s day.  Unlike other countries, we have no plans to implement congestion pricing.  In communications, we lag countries such as South Korea in broadband speed and percentage of households connected; we lag all of Europe and most of Asia in mobile phone coverage.  Our consumer market is huge, but it is also brutally competitive and most consumers have all of the stuff that they need; emerging middle classes in India, China, and Arab countries represent more of a profit opportunity.

If we handed out $500 billion right now to U.S. businesses and told them to invest it, how much of that investment would happen here in the U.S.?

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America’s prison population has been in the news recently, having reached a record high in absolute numbers, partly due to population growth, of course, but still representing about 1 percent of the adult population. Economic statistics are affected by imprisonment. The person in prison stops paying taxes and generating GDP. The companies that built prisons and the people who work in prisons are accounted for as adding to GDP (story). If we assume that for every two people in prison, there is one person involved in prison construction or management, and that prisoners and guards would both make average salaries if working in some other industry, the effect on the economy is 1% down from the prisoners not working and 1/2% up from the prison industry working.

Does it make sense to say that our GDP is reduced by only 1/2%? Suppose that 66.6% of us were in prison and 33.3% of us were building and running prisons. An economist would say that our economy was reduced either by 33.3% or 66.6%. In fact, however, no food would be grown, no products manufactured, and no private houses constructed. People wouldn’t be able to buy import anything from other countries because the 33.3% of the population that was working would have to pay 100% of its salary in tax just so that it could pay itself.

Putting immigrants in prison is probably the worst imaginable thing to be doing economically. It is tough to find good national statistics, but http://www.nytimes.com/2007/05/30/business/30leonside.html seems to indicate that about 7 percent of the U.S. population are noncitizens and that the percentage among prisoners is similar (it is about 17 percent in California state prisons). Suppose that 1 million immigrants come over the border tomorrow, commit crimes, are apprehended, and are put in prison. The economists would record a massive spike in GDP. We paid police officers to find these folks, we paid construction workers to build new prisons, we paid guards to watch them, we paid managers to supervise the guards, we paid farmers to divert grain from our biofuels program to feed these folks. So the numbers look great temporarily, but the effect on the welfare of American citizens and our competitiveness for new business investment would be devastating. [Just as the tornado that hit Atlanta yesterday will increase GDP as windows are replaced and buildings repaired, though the people of Atlanta are certainly not better off and we could have spent that money building factories instead.]

At the very least, running an expensive prison system seems to put us at a competitive disadvantage to countries that can manage to achieve similar levels of public security without such a large or expensive prison system. Our taxes will be higher compared to those other countries and that will discourage business investment.

If we want to dig ourselves out of this recession, we may have to stop committing crimes against each other!

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An interesting new article about Microloans from James Surowiecki, the New Yorker’s financial writer.

It prompted me to check my portfolio at kiva.org.  I loaned out $650 back in July.  The borrowers were four people running small shops and hair salons in Ecuador.  Nearly all of the money has been repaid.  By choosing Ecuador, I have apparently done better than the average Kiva user, who loaned out $95 and who has suffered a 3.76 percent delinquency rate (compared to 0% for me).  I re-loaned $100 to Rhoda Mbwila in Tanzania so that she can raise some more chickens to sell.  She has previously  paid back a couple of loans from the same local organization.  I loaned another $100 to a woman running a shop in Huancayo, Peru (a Google search reveals this to be a very nice town indeed).  I loaned the rest of my $350 in available credit to Luz Perez Yauri, who has an alfalfa farm in Huancayo (as long as the Chinese keep getting richer, I have faith that commodity prices will stay high, not to mention the fact that the U.S. will need to import food like crazy once we’ve melted all of our grain down into biofuel for our SUVs).

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If you have $60 million(?) to spend on a new personal airplane, the Gulfstream G650, described in this Aero-News.net article, might be a good choice.  The machine demonstrates that innovation can be pushed through the FAA certification process as long as you give yourself a few years and a few $billion.  The G650 shows the pilot synthetic terrain, almost as realistic as if you’d hooked up a $30 GPS to a $39 copy of Microsoft Flight Simulator.  More interestingly, it has a forward looking infrared camera to show a real-world image through fog or rain.

For folks who like to spend a lot of time on their new airplane, the cabin pressurization system is great, able to keep the cabin at 2,800′ while the plane is flying at 41,000′.  To soar above the rabble, the G650 can get to FL510 (51,000′) and the pressure inside the cabin falls to about 5,000′ above sea level.  The plane is even faster than the Cessna Citation X, the previous champ at 0.92 Mach, with a cruising speed of 0.9 Mach and a maximum speed of 0.925 Mach.

The world’s fastest flying airplane comes with the world’s slowest loading Web site: http://www.gulfstream.com/gulfstreamg650/

[If you think that by chartering one of these puppies for $10,000 per hour, you’ll escape the pain and suffering of Transportation Security Agency screening, you might just be right.  The takeoff weight is 99,600 lb., just squeaking in under the 100,000 lb. threshold where TSA screening for charters is required.  My understanding that if you own the plane outright and are just flying around in it, no screening would ever be required.]

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