Philip Greenspun’s Weblog

Today’s New York Times has an interesting graphic on private sector employment growth in the U.S.

The overall picture shows that we have about the same number of private sector jobs that we had in 1999 (0.01% annual growth rate over 10 years). If there are more Americans working they are working for the government. (Population growth rate of 1 percent per year combined with current government spending of about 37 percent of GDP means that the government will have to expand about 3 percent every year in order to provide jobs for new Americans, unless somehow a way can be found to encourage private enterprise (see my economic recovery plan for a personal theory).)

The decline in manufacturing is an old story, though the 3.7 percent annual rate is an alarmingly fast grind-down. The declines in air transportation, hotels, and retail are surprising. It certainly does not feel as though we have fewer airline flights, hotels, or stores.

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Back in 2003, I asked whether it made sense “to make corporate managers as rich as Rockefellers” (original post). I pointed out that paying a CEO or other top executive enough to own multiple houses or become a philanthropist was probably counterproductive for the shareholders. A rich person tends to be busy with his or her possessions and distracted from work.

Just this week I noticed a 2007 study by Liu and Yermack, a couple of business school professors. They figured out where nearly all of the CEOs of the S&P 500 lived, when those houses were purchased, how much they cost, and whether the CEO sold stock to help pay for the house. The paper is detailed but the conclusion is that the guys who bought fancy houses presided over companies whose stock significantly underperformed the S&P 500 index.

More: download the paper free from this site.

[Quaint reminder: in the 2003 posting, I referred to the U.S. economy as “moribund”. Little did I know!]

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I’m wondering if Cash for Clunkers will be remembered as a turning point for the American people. We already spent roughly $100 billion of taxpayer money on the obsolete technology of 3500 lb. cars made by uncompetitive companies, happily ignorant of the fact that the world will be driving cars more like the Tata Nano (March 27 post; March 23 post). Could we really have spent enough money to fund 5000 Googles on GM and Chrysler? Yes, but the sum is so vast that human minds can’t contemplate the scale of the spending.

Cash for Clunkers has the following elements of spectacle:

• Americans destroying perfectly functional cars
• Americans whose skills are uncompetitive in the global marketplace driving around in fancy new cars

Somewhere in China and India they must be having a good laugh.

The deeper issues are more troubling. Cash for Clunkers only makes sense if we believe that our #1 problem is that we don’t drive sufficiently fancy cars.

Will the program save energy? Let’s leave aside the obvious waste of destroying a working car here, building a new one in Korea, and shipping it across the Pacific. Consider that a person who has a car worth $4500 has a limited budget for gasoline. If you give him a car that uses half as much gas per mile driven, he may simply drive twice as many miles. One of America’s acknowledged #1 problems is urban traffic congestion. We’ve come up with a program to make it a lot worse. A guy who would have carpooled to save on gas, ridden the bus, bicycled, or found a way to avoid the trip is now clogging the highways in his new Toyota.

Will the program help less fortunate Americans? Consider a guy who has been foreclosed out of his unaffordable mortgage. He has a cheap apartment and a paid-for car that isn’t pretty but gets him to work. If he loses his job he can move in with his mom and not worry about debt. After Cash for Clunkers, the same guy has a new car that cost 10X as much as a Tata Nano and a consequently crushing car loan obligation through 2014.

What else could we have done with the money? 37 percent of Americans don’t have broadband Internet at home (source). If we spent the Cash for Clunkers money on Let’s Try to Catch up with Korea (95 percent of households with broadband, typically much faster than ours (one source)) a lot of Americans might not have needed to make so many trips in their cars because (1) they could work from home, (2) they could shop from home, (3) they could get information from home, (4) they could find out, from home, that some place they were planning to go was in fact closed.

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We tend to think of America as an economically free country (#6 rank in one study), but with the proposed health care reform going through Congress it is remarkable how many laws an employer can break by employing his or her fellow Americans.

Suppose that you set up a company and hire 10 childhood friends. You don’t want to skim anything from their paychecks, and your wife has a fat government job, so you decide not to take anything out for yourself. Out of the goodness of your heart you’re going to pay for the office space and do the administrative legwork. When a customer pays, you’ll divide up the check into 10 portions and distribute it immediately to your employees. The employees are getting the absolute maximum long-term pay that they could under this arrangement, taking home 100 percent of the revenue from customers.

What laws are you breaking? At least the following:

1. you’re not paying for unemployment insurance
2. you’re not withholding federal income tax
3. you’re not withholding state income tax
4. you’re not paying worker’s compensation insurance
5. you’re not paying the employer’s share of Social Security and Medicare taxes
6. you’re paying people with a 1099 instead of a W2
7. though you went to elementary school with these folks, know their mothers, and know for a fact that they were born in the U.S., you didn’t verify to the government’s satisfaction that they were U.S. citizens
8. (the new one) you’re not arranging health insurance for your 10 friends

One would naively think that an employer who hands over 100 percent of revenue to employees was a kind and generous person, but it turns out that he or she is breaking more laws than a drug dealer.

[You might argue that it is possible for workers to obtain more than 100 percent of customer revenue, minus any materials costs. Government workers get paid without regard to revenue, productivity, achievement, etc. Some workers on Wall Street and at Detroit automakers obtained more than 100 percent of gross profits because they were able to supplement their compensation with tens of billions of taxpayer dollars. However, the average private sector workforce is limited by revenue from customers.]

[I had to delete a lot of comments from people who assumed that if the employer was not withholding income taxes that no income taxes were being paid. In this case, of course, the employees would pay their own income taxes on Schedule C of the Form 1040 (self-employment income). The 1099 filed by the employer would force the employees to report at least that much income on their Schedule C.]

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I chatted with the line guys on the ramp in the Wilmington, Delaware airport. The election of Joe Biden to Vice President has caused some changes to the airspace. There is a permanently restricted area of airspace to the NW of the airport, around Biden’s weekend house. The airport gets shut down every time Biden commutes home at taxpayer expense. What kind of plane does Biden, a tireless advocate of reduced carbon emissions (source), use for the 15-minute flight from D.C.? “Boeing 757”, was the report from the ramp, “You wonder how the government can criticize private companies for using light jets when they themselves ride solo in the back of a 757.”

[Note: the shortest version of the Boeing 757 can hold up to 234 passengers plus a crew of at least 7 (source).]

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I’m planning a flight today from Bedford, Massachusetts (KBED) to Wilmington, Delaware (KILG). Having a few minutes of waiting time in the car, I called Flight Service to ask for the outlook for tomorrow. Phone calls to Flight Service were formerly handled by FAA employees, somewhat overpaid government workers who were based in small regional offices such as Bridgeport, CT, Burlington, VT, and Bangor, ME. The FAA Flight Service folks were often pilots themselves and they always knew a lot about local weather and procedures. The service was paid for by taxes on fuel sold to privately operated aircraft.

A couple of years ago, the Feds decided that they could save money by outsourcing Flight Service to Lockheed-Martin, the company that turned a $30 million Eurocopter into the $400 million presidential VH-71 (subject of recent Congressional inquiry when people figured out that each of these helicopters will cost the taxpayer more than an Airbus A-380). Lockheed-Martin consolidated Flight Service into a handful of central facilities, staffed with people who met the FAA’s minimum requirements.

I explained to the briefer the reason for my phone call: I wanted to know by what time I had to leave in the morning to avoid the afternoon thunderstorms that I’d see in a public forecast and that are typical in the summer. He said “There aren’t any thunderstorms in the forecast.” I was surprised and asked him to check the terminal forecasts again. He confirmed that he was looking at the 8 pm terminal forecasts, which are good for 24 or 30 hours depending on the airport. I asked him to look at the airports in between BED and ILG. He repeated that there was nothing to worry about.

When I got home, I looked at the same data that he’d look at, from the Web-based duats.com (requires pilot certificate to register; ADDS offers similar data to anyone). Here’s what I found…

Area forecast for Eastern Massachusetts: outlook VFR becoming VFR rain showers thunderstorms with rainshowers 12 noon EDT (16Z).

Southeast NY: Outlook: VFR with rain showers thunderstorms with rainshowers.

Boston terminal forecast, 9a-1p: temporarily visibility 4 miles, rain showers, mist, broken cumulonimbus at 2,000 feet [note that a cumulonimbus cloud is a component of a thunderstorm]

JFK terminal forecast, 2pm: wind 190° at 14 knots gusting to 20 knots, visibility greater than 6 miles, scattered cumulonimbus at 8,000 feet, 25,000 feet broken

Wilmington, DE (ILG) terminal forecast, 2 pm: wind 180° at 12 knots, visibility greater than 6 miles, thunderstorms in the vicinity, broken cumulonimbus at 5,000 feet.

Government privatization usually results in the perpetuation of a monopoly (in this case Lockheed-Martin is the only company which a pilot can contact to use the services that his or her fuel taxes paid for) and it is very difficult to specify quality, as perceived by the customer, in a contract.

[A few weeks ago, I was flying into the dreaded Washington, D.C. ADIZ. If you don’t have a flight plan, a squawk code, radar contact, etc., they can roll the F16s and shoot down your little 4-seater. I decided that my flight plan from the Westminster VOR to Gaithersburg (about 10 minutes in the Cirrus) was too precious to entrust to DUATS, so called Flight Service and gave them the plan over the phone. As I got closer to D.C., the controllers searched and searched but never could find my flight plan. Fortunately, they were able to use their discretion and allowed me to proceed to Gaithersburg, but Lockheed-Martin’s failure could easily have forced me to land short of the D.C. ADIZ, file a new plan via phone or Web, and take off again, a significant waste of fuel, time, and money.]

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Using Google App Engine, a recent O’Reilly book by Charles Severance, is a very rare animal: a self-contained book on software development. An intelligent person who had never written a computer program could, without referring to other books, develop a very simple application running on Google’s servers. The book has been slammed by some nerd reviewers on amazon.com for being shallow and wasting time explaining what HTTP and HTML are, but these are precisely the things that I like about the book. The chapter on Python starts with a section titled “What is Programming?”

A person doesn’t have to devote his or her life to reading dozens of interlocking books. This 240-page book is sufficient for a satisfying introduction to the world of cloud nerds. If the reader wants to go deeper, the online docs for all of the subsystems described in the book are available.

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I recently attended a baby shower, something that I never thought that I would do unless I had first gone to Thailand for a sex change operation (cannot afford U.S. prices for elective surgery!). Apparently this is the style with modern/older mothers and there were at least 7 or 8 other guys there.

The situation was made more challenging to my fragile sense of masculinity by the fact that I offered to re-park a car at a neighbor’s house, in order to free up parking spaces for additional guests. The owner had left her purse in the car and the locks on the old Saab, along with everything else, seemed to have failed. I decided that I couldn’t leave the purse in the car. Thus did I find myself walking to a baby shower carrying a woman’s purse.

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Californians are scratching their heads trying to figure out why their government has run out of cash. Some blame the constitution. Some blame the governor. Some blame the lobbyists. Let’s run a few numbers.

The median wage of a California state employee is $66,000 (source). The median wage among all Californians (including those state workers) is just over $36,000. The state employee can retire with a full pension in his or her late 40s or early 50s, which essentially means that the taxpayers have to pay for double the number of state workers that are required to provide current services. In addition to salaries that are much higher than private sector equivalents, the state employee has health care and other benefits that by themselves may exceed the total compensation of a full-time private sector employee. The reasonable question to ask is not “How did they run out of cash?” but “How was this ever supposed to work?”

The picture is worse than the numbers would suggest. A lot of new Californians are working illegally. Their wages, which may be paid in cash, are less than $36,000 per year, and are not reflected in official statistics. Yet an immigrant who arrives to take a $10 per hour job still requires teachers for his children, policemen and firemen for his neighborhood, etc.

California has a tax burden of 10.5 percent of its citizens’ income, higher than the U.S. average of 9.7 percent (source). Due to the fact that California government has grown so much in the past few decades, its pension and health care payment obligations for retired state workers are going to skyrocket in the next 20-30 years. (The inefficient states of the Eastern U.S. were more or less equally inefficient in 1980 and had roughly the same population and size of government workforce.)

California could become solvent… if it can insure that everyone who moves to the state for the next 30 years is a medical doctor earning at least $150,000 per year from Medicare, Medicaid, and other out of state sources.

[Related: This guy calculates that, adjusted for inflation, California government now spends 3.54X as much per citizen as it did in 1970. It seems hard to believe, but I don’t have enough data to contradict it.

The federal government is not doing a whole lot better, according to this Congressional Budget Office posting. What keeps the Feds going is their ability to borrow and print money.]

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In January I posted a theory that the U.S. economy might not do anything more dramatic than slide sideways, which would look like a downward slide relative to other nations, more or less as the U.K. has done since World War II. There is no law that says we have to grow or crash. It has been six months since that post and the economic numbers remain depressing but not terrifying. GM is still in the news, having absorbed perhaps another $50 billion in taxpayer funds and hopelessly ill-equipped to compete with the Tata Nano or the electric cars coming out of China. The government continues to expand but few have noticed any great improvement in the quality or quantity of services delivered by the government. Any growth in GDP seems likely to be roughly matched by our 1 percent annual growth in population, which will result in a reasonably happy government, but a disappointed people. The government will be a happy due to a rising tax base. The people will be disappointed because increased population will bring congestion, rising real estate costs, and constant per-capita income that most likely will turn into a falling income for most Americans, given that a lot of forces tend to make the rich richer and the poor poorer.

How accurate does this assessment seem? Are you seeing evidence of a recovery in your neighborhood?

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