Philip Greenspun’s Weblog

A Mad as Hell and not Going to Take it Anymore letter from a banker that explains how credit card limits are set… from the nytimes

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Here’s a New York Times article about electric car infrastructure for Hawaii. This shows what private enterprise can do when the challenge is moderate. I don’t think that we could rely on an entirely private solution for the entire U.S. because the capital requirements are too large to support the entire Lower 48 simultaneously. This loosely relates to my earlier posting on converting the U.S. to electric cars.

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Jimmy Carter’s most eloquent words were in response to a question about abortion: “There are many things in life that are not fair, that wealthy people can afford and poor people can’t” (typically condensed to “life is unfair”).

Let’s revisit two young MIT graduates. Back in 2005 I found them sharing an apartment. My student was earning $90,000 per year working 80 hours per week on a new videogame. His classmate was selling $750,00 mortgages to people with bad credit, earning $150,000 per year working six hours per day (story). I figured that this couldn’t last forever. A society could not continue bestowing most of its economic rewards on those citizens who contributed the least to sustainable GDP growth. I thought that surely the pendulum would swing back and the engineer would be reaping much more in the way of rewards than the mortgage fee collector.

What’s the story in 2008? The mortgage gig came to an end and our young genius is now in law school, preparing to join his fellow lawyers in reducing GDP. What about our diligent engineer? Laid off when the project ran over budget and got canceled. He’s looking for work.

This got me thinking about globalization. When the infrastructure for globalization was new, nobody was quite sure how the benefits and costs would be distributed in American society. The container ship, the jet airliner, and the Internet introduced only subtle changes at first and then any costs were softened by a global economy that was mostly booming from the early 1980s through 2007.

As the U.S. economy collapses and people stand in unemployment lines it is easier to see who got hit the hardest by globalization.

Consider the domestic autoworker. His counterparts in Mexico are happy with a wage of $1.50 per hour. The more money that the U.S. government gives his employer, the more rapidly it builds new factories in Mexico and China. The container ship brings in inexpensive products from China, but once our autoworker gets laid off he can’t afford to buy too much. Food is a big portion of a laid-off worker’s budget, but we have decided that food will be one of the few things that we won’t let foreigners compete in supplying to American consumers, so the price of food in Michigan remains much higher than on the world market. What about housing? That’s also a big expense for a newly unemployed person. Construction labor and materials have become much more expensive because of increased demand from the countries that grew as a result of globalization.

Consider the public school teacher. If she has been in her job for a few years (2 in California) she has earned tenure and can’t be fired. If she holds onto her chair for 10 or 20 years she’ll be earning $70,000 per year in many systems. She cannot lose her job if she is less effective than a teacher in China or South Korea who earns far less. She benefits from being able to buy a 2010 Ford Fiesta built in Mexico by workers earning $1.50 per hour.

Consider the medical doctor. More than half of her income comes from programs guaranteed by the U.S. government, e.g., Medicare and Medicaid. As long as the U.S. has old people or poor people, she will always have work. Her professional association prevents the licensing of new medical schools that would increase competition among doctors for jobs. Thanks to the reduction in manufacturing costs from globalization, she can afford to purchase a brand new flat-screen TV every day for the rest of her life and give it away after watching one program.

The broad trend seems to be growth in government jobs, growth in health care (essentially a government job because more than half of all health care dollars are spent by the government), and shrinkage in private industry jobs. Another 10 or 20 years of this and 100 percent of employed Americans will work for the government or the health care industry.

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We’ve scarred the land to drill oil wells, dig coal, and pipe natural gas. We’ve dammed our rivers and impounded so much water at high latitudes that we’ve speeded up the Earth’s rotation (like a skater pulling in her arms). We’ve filled our mountain passes and plains with inhumanly-scaled windmills. What more can we trash in an attempt to generate more electricity? How about the oceans?

http://www.ns.umich.edu/htdocs/releases/story.php?id=6842 shows how.

[Understanding Earth contains an explanation for how dams built by rich countries cause the Earth to spin faster.]

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Perhaps the reason our economy has collapsed is that America’s best thinker is only smart compared to the rest of us dumb Americans? Malcolm Gladwell, a staple for us New Yorker magazine readers and on the business insight bestsellers shelf at airport Borders outlets, gets a thrashing in “The dumb, dumb world of Malcolm Gladwell; A guru for the brain dead” (from London; apparently folks in the UK aren’t as easily impressed as we are).

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Suburban Living Science Report #1: Bacon on the gas grill.

Our humble suburban Deck House (factory-built in Acton, Massachusetts for the last 50 years or so… until a couple of weeks ago when the company sent all of the workers home) contained a very functional electric range back in 1968. At that time it was acceptable for a suburban family to drive around in a car and simmer a sauce by pressing the “simmer” setting on the stove. Along with the SUV, however, the modern suburban family needs a Viking range. In 2000, therefore, the kitchen was expanded and a 48″ wide Viking range installed. Viking takes the word “burner” literally and the lowest setting on the burner is hot enough to boil a vat the size of what you’d see the witches stirring in a high school production of Macbeth.

With six burning burners, you need a massive range hood to pull the heat out of the house before it burns down. Thus a 1200 CFM range hood was installed, which makes as much noise as a departing business jet. The combination of a fully licensed and trained architect and fully licensed and trained contractor resulted in the 10″ duct carrying this 1200 CFM stream of air terminating in a roof cap that restricts the flow to a mere trickle. Consequently, it is impossible to cook or grill anything without having all of the smoke bypass the hood and set off the smoke alarm.

Hosting a waffle brunch today for a bunch of friends, I grappled with the question of how to cook 4 lbs. of bacon from Costco (I deleted Whole Foods from the car’s GPS system when the Dow slid below 8000). Not wanting to fill the house with bacon grease, I decided to use the outdoor gas grill. My friend David was the first to arrive at the party. When I explained what I was doing, he said “Do you want me to call the Fire Department now?”

It turns out that bacon on a standard outdoor gas grill comes out great if you’re patient. The grease disappears magically into the burners. There is no pan to clean up. You can grill about 1 lb. of bacon at a time. We experimented with different heat settings. High heat results in a slightly unpleasant burned taste. Medium-low heat for 20-30 minutes is what we found to be optimum. If doing a large quantity, start an hour or two ahead of the party and microwave just before serving.

[Side report on waffle mix: We had some waffles made from a nicely packaged organic mix from Whole Foods (purchased a week or two before the latest meltdown). They were okay, but not as good as those from the Trader Joe’s mix, which was approximately 1/6th the price. Frozen blueberries to go with the waffles were $12 at Whole Paycheck. The exact same brand, size, and packaging was $7 at Costco.]

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I recently finished reading The Girl from Foreign on my Kindle (still loving the Kindle for travel when a book is 100 percent text; the Kindle is also good for use on treadmill; the Kindle is useless for books with illustrations due to its lack of pan and zoom).

About one third of the book talks about the remnants of India’s Jewish community, in the news right now because of the Muslim attacks on various gatherings of people in Mumbai, including taking hostages at a Jewish center. The Girl from Foreign records that the Jews of India felt secure from Islamic violence because they were both minorities and the Muslims tended to fight Hindus. Most of the young ones were emigrating to Israel, nonetheless.

A less upsetting reading recommendation: the profusely illustrated and therefore unsuitable-for-Kindle The Fires of Vesuvius: Pompeii Lost and Found (remarkably readable despite deep scholarship).

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Loosely related to my own economic recovery plan… From the October 30, 2008 BusinessWeek, Michael Porter writes “Why America Needs an Economic Strategy”. Some excerpts:

“An inadequate rate of reinvestment in science and technology is hampering America’s feeder system for entrepreneurship. Research and development as a share of GDP has actually declined, while it has risen in many other countries.”

“America now ranks 12th in tertiary (college or higher) educational attainment for 25- to 34-year-olds. We have made no progress in this vital area over the past 30 years, unlike almost every other country. This is an ominous trend in an economy that must have the skills to justify its high wages” [philg: it would be more interesting to focus on how much people learn than how many degrees they collect]

“The job training system is ineffective and receives less and less funding each year.”

“Federal polices have hobbled America’s entrepreneurial strength by needlessly driving up the cost and complexity of doing business, especially for smaller companies. Cumbersome regulation of employment, the environment, and product liability needs to give way to better approaches involving less cost and litigation, yet special interests block reform. The U.S. has become a high-tax country not only in terms of rates but also administrative hassle.”

“Infrastructure bottlenecks, due to neglect and poorly directed spending, are driving up costs in an economy increasingly dependent on logistics.” [philg: this ties into my constant calls for congestion pricing on our roads]

“A final strategic failure is in many ways the most disconcerting. All Americans know that the public education system is a serious weakness. Fewer may realize that citizens retiring today are better educated than the young people entering the workforce. In the global economy, just being an American is no longer enough to guarantee a good job at a good wage.” [philg: though Obama has promised us that we will get paid a lot, no matter how dumb we are!]

“Unless we significantly improve the performance of our public schools, there is no scenario in which many Americans will escape continued pressure on their standard of living. And legal and illegal immigration of low-skilled workers cannot help but make the problem worse for less-skilled Americans. ”

“Democrats, meanwhile, keep talking as if they want to penalize investment and economic success. They defend unions obstructing change in areas like education, cling to cumbersome regulatory approaches, and resist ways to get litigation costs for business in line with other countries.”

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My take-aways from the article… (1) if we could improve education at all levels, from elementary school to job retraining for laid-off workers, we could survive all of the other handicaps that we’ve created for ourselves, (2) there is absolutely nothing in common between Porter’s suggestions and what our politicians are doing.

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When the economy gets a cold the aviation industry gets pneumonia. Here are a couple of news stories…

Cirrus is slowing down production until January 2009, furloughing many production workers (story). This follows layoffs of 205 people earlier this year. After Cessna, Cirrus should be the strongest piston airplane manufacturer. They make the world’s best selling piston-engine airplane, the SR22. Following their acquisition in 2001 by First Islamic Investment Bank they’ve had ample access to capital from the Arab Gulf states.

Eclipse is demonstrating the worst that can happen when you buy an aircraft from a new company. They have filed for Chapter 11 reorganization, but only plan to operate in Chapter 11 for a couple of months until all of their assets can be sold to an affiliated European/Russian company. People who paid $1.5 million for jets that never quite worked now have no warranty. If they want to get the planes certified for flight into known icing, they’ll have to pay for the work themselves. Folks who put down deposits of $100,000 and more have lost everything. (full story) What about investors? According to a February 18, 2008 article in the Albuquerque Journal, the company had raised more than $1 billion in capital. The stockholders presumably have suffered a 100% loss.

2008 has not been kind to new airplane companies. Adam Aircraft, founded in 1998, went bankrupt (Chapter 7 liquidation) in April. They had a weird-looking piston twin featured in the movie Miami Vice and also a jet for which they had made a lot of claims. (wikipedia) Customers who were unfortunate enough to take delivery of the $1.25M piston twin are grounded due to lack of support (story).

I only hope that Icon Aircraft (WSJ story; company Web site requires somewhat destructive Flash upgrade) survives long enough that we can fly their little amphibian.

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Today we learned that the Federal Reserve is going to buy $800 billion of loans from banks (story). Where is this money coming from? The Fed is going to have to give banks $800 billion in cash in exchange for the right to collect whatever money gets paid over the years on car loans, student loans, and mortgages. It sounds like taxpayer cash is going out the door right now, yet there was no corresponding story about Congress raising $800 billion in taxes. There was no corresponding story about Congress authorizing $800 billion in spending. We didn’t hear about the U.S. government selling $800 billion in new bonds.

So… where is this money coming from? Are we printing it, borrowing it, taxing it, or “other”?

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