Philip Greenspun’s Weblog

This Wall Street Journal article, “Just Say No to Detroit”, by David Yermack, a finance professor at NYU, has some interesting calculations. The author claims that Roger Smith was prescient for realizing that GM should diversify rather than putting more money into making cars. The figures in the article are impressive, with about $465 billion invested by Ford and GM since 1998, enough to have purchased Honda, Toyota, Nissan, and VW. Presumably he couldn’t scratch up the figures for Chrysler because they are now private.

Favorite quote: “If the government diverts our national savings into businesses that have long track records of destroying investment capital, eventually we’ll end up with an economy like France’s — or Zimbabwe’s.”

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This New York Times piece talks about a Web site that teaches math to American kids using a curriculum from India. “Math homework in India consists of math problems that students work through, as opposed to the United States, where homework is heavy on reading about math topics in a textbook.”

This echoes some of my recommendations to computer science teachers in Africa.

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“I find myself in a lonely position. While many states and local governments are lining up for a bailout from Congress, I went to Washington recently to oppose such bailouts. I may be the only governor to do so.” — Mark Sanford, Governor of South Carolina

The complete Wall Street Journal piece has some interesting points, including “There’s something very strange about issuing debt to solve a problem caused by too much debt.” and “Those [states] that have been fiscally responsible will pay for or lose out to the big spenders. California increased spending 95% over the past 10 years (federal spending went up 71% over the same period). To bail out California now seems unfair to fiscally prudent states.”

Some similar points are made in “Why Spending Stimulus Plans Fail.” The author points out that “Every dollar [Congress] injects into the economy must first be taxed or borrowed out of the economy.”

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I’m driving a new Chrysler Sebring convertible right now. The weather is beautiful so I leave the top down when parking for an hour or two, putting my bags in the trunk for safe keeping. I walk away from the car. I click the “lock” button on the remote. Now the car’s computer systems know that I have walked away from the car and said “lock it up”. How secure is my stuff in the trunk? A perpetrator can walk up to the car, touch the trunk release button on the left side of the dashboard, and the trunk will pop open withou sounding an alarm.

Two lines of software in any of the microprocessors filling this car could have prevented this security risk. Do we want to give people who engineer products like this $50 billion of taxpayer money to play with?

[Recession Tip: In the pre-Meltdown days I splurged on Hertz #1 Gold, which would have cost about $90 per day for this car. This rental came from 30 seconds of comparison shopping on Expedia and cost $32 per day.]

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Politicians are debating an economic stimulus package for the U.S., with a figure of $150 billion being tossed around. Can this work?

Let’s consider the question from an employer’s point of view. A company needs to decide whether to invest in a new factory and whether or not that investment should be here in the U.S. In deciding whether to build a factory whose useful life might be 20 years, the company would look at long-term economic prospects, not short-term ones. In deciding whether to build the factory and create jobs here in the U.S., the company would look at tax rates, the education level of the workforce, and the costs of employing that workforce.

Based on tax rates, education, and costs, the U.S. is not looking competitive right now. Corporate tax rates are among the highest in the world. The quality of our high school graduates is stagnant or slipping while other countries have enjoyed big improvements. Our workforce is expensive to employ if only because employers are required to pay for health care costs that are now certainly the highest in the world.

Let’s consider the question from a consumer’s point of view. The average consumer has a crushing burden of debt and, unless he or she is one of the 40(?) percent of Americans who work directly or indirectly for local, state, or federal government, is concerned about being laid off. The consumer has been informed by the recently elected Democrats that new and higher taxes are forthcoming. The consumer thus reasonably expects his or her long-term spending ability to be lower than it is today. Anyone in that position would be reluctant to incur a long-term obligation, be it a car loan, a mortgage, a lease on an apartment. If the government sent a private sector employee a check, he or she would most likely use it to pay down some debt, not go on a spending spree.

Maybe the right answer is to send stimulus checks only to people with government jobs and/or think about actions that would give companies long-term confidence in the U.S. economy and consumers long-term confidence in their spending power.

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In the last couple of weeks, I have used priceline.com twice for hotel rooms. In big cities where higher-end hotels were asking $250-400 per night on their Web sites and through Expedia, I was able to get rooms for $125 per night. It seems that hotels are afraid of tarnishing their brand by offering deep discounts at the last minute, but they are happy to do it through Priceline where only the buyer knows that they sold off a room that otherwise would have gone vacant. In a growing economy there would be a serious risk of ending up with nowhere to sleep, but in our current depression there is virtually no chance of all of the hotels in a town selling out. Unless you need to stay in a specific hotel for an event, priceline.com a day or two before seems to be the way to go.

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One of the arguments in favor of spending $50 billion bailing out GM is that if the company reorganizes under Chapter 11 of the U.S. bankruptcy code (as suggested by this earlier posting), consumers won’t want to buy their cars due to uncertainty about the value of the warranty. Instead of throwing cash at the company, why not offer to back up the warranty with a federal guarantee for every car sold during GM’s Chapter 11 reorganization? New cars are extremely reliable and the true cost of the warranty is probably close to $500 (source). GM is currently delivering 170,000 cars per month. If GM imploded and nobody purchased any of its brands or the purchasers would not honor the old warranties, the Feds would be on the hook for something like $85 million for every month that GM was being reorganized. If the Chapter 11 reorganization lasted for 9 months, we’re talking about less than $1 billion of exposure or 1/50th of the cost of what Congress is currently contemplating.

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My friend Ray and I picked up a new helicopter at the Robinson factory in Los Angeles on Friday. We flew along Interstate 10 to New Orleans and then hooked a left up through Atlanta towards Washington, D.C. At all of the airports prior to D.C. we would borrow a car at the FBO and return it the next morning. At the Montgomery County Airpark in Gaithersburg, Maryland, we got our first rental of the trip. Enterprise was supposed to deliver a sedan, but instead showed up with a massive black GMC Yukon pavement-melting SUV. The monster truck had only about 3000 miles on the odometer and a plethora of switches and knobs, so I think that we can assume this represents General Motors’s finest engineering achievement.

The first thing that I noticed was the lack of GPS. What kind of car company crams together $40,000 of metal, leather, and plastic and leaves out a $5 GPS chip and $25 LCD screen that would save the owner from driving around at 8 mpg searching for an address?

The second thing I noticed was the waste of “screen real estate”. Right in front of the driver were an array of almost completely useless gauges:

• voltage (always at 14)
• coolant temperature
• oil pressure
• tachometer (with a V8 and automatic who cares?)
• speedometer (in Washington, D.C. traffic you’d be lucky to achieve 15 mph)

Why would any of this information be given such a valuable position in front of the driver’s eyes? As soon as LCD screens became daylight-readable and cheap, you’d have expected car companies to put the moving map in front of the driver. If the oil pressure plummeted, the speed was more than 15 percent over the limit for the currently traveled road (GPS databases seem to include speed limits for each road), or something else abnormal happened, you would expect some of the display to switch over to showing the now-critical information.

Instead of asking the taxpayers for $50 billion, G.M. could have used the moving map in front of the driver to earn significant revenue. The moving map could show nearly hotels, restaurants, and shops. G.M. could be collecting a commission any time that a driver chose to stop at an establishment that had been featured in the moving map.

What was Ray’s comment on these ideas? “I have a 1969 Jaguar in my garage. The gauges on this SUV present exactly the same information in exactly the same way.”

How about the rest of the car? The rear hatch kept popping slightly open while driving, generating some road noise and a warning message… underneath the tachometer in 1970s-style LED letters.

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G.M. is in trouble, according to the latest news. The company has some contracts and other obligations that it can’t afford. What can the government do to help?

Answer: The government has already done everything that it needs to in order to help G.M. The government established bankruptcy courts so that a company like G.M. can go through a Chapter 11 reorganization. During the Chapter 11 process, a judge has the power to adjust the company’s obligations so that they can be paid from the company’s likely future revenue. Chapter 11 was designed specifically so that employees can keep their jobs, albeit possibly at lower salaries, while shareholders and creditors suffer and/or are wiped out.

The stockholders, creditors, and employees of G.M. do not deserve to be spared the pain of the recession. The rest of America will be taking pay cuts, losing jobs, giving discounts to customers, etc. What is special about G.M. that they should be able to live as though 2008 never happened?

[Note that the current market capitalization of G.M. is only about $2.8 billion (compare to over $100 billion for Google). The shareholders have already lost almost 100 percent of their investment. The world won’t come to an end if these shareholders go from losing 95 percent to losing 100 percent. An evaporation of $2.8 billion will barely register compare to the losses that the S&P 500 holders suffer nearly every day.]

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In this December 12, 2007 posting, I predicted that Barack Obama would win the Election 2008 popular vote by 5 percent over “whoever is unfortunate enough to win the Republican nomination”.

http://www.cnn.com/ELECTION/2008/results/president/ shows that Barack Obama actually prevailed by 7 percent.

[Reference: In 2004, Bush won 50.7 percent to Kerry’s 48.3 (source). In 2000, Bush won 47.9 percent to Gore’s 48.4 percent (i.e., Bush would have lost if not for our electoral college system). In 1992, Clinton won 43 percent of the popular vote to King Bush I’s 37 percent. Clinton’s reelection in 1996 was 49/41.]

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