Coyote Blog

I have a bunch of motorized shades on the high clerestory windows around my house (these are about 10 feet off the floor so impossible to manually open and close).  I had the ladder out this weekend and was replacing batteries when I found one of the battery cases was corroded beyond repair because a battery had leaked.

I checked the Hunter-Douglas web site, and found the parts request link.  It said that if they had the part in stock, they would send it to me for free.  That sounded like BS, and I wrote them that I was happy to be charged, I just wanted the part.

Today I got this email:

It's our pleasure to provide you with the replacement Duette PowerRise AA battery Wand requested and sending them to the address provided.  These parts are offered at no charge to our consumers.  You will receive your parts within 10 business days.

Awesome.

Google grew up providing a number of free services (email, search, etc.)  Given that they were free, it was not unreasonable to avoid providing any live customer support via email or phone.  Users weren't paying anything, so if they had a problem they could try to solve it on the boards.  In fact, I have criticized whiners on boards for their absurd expectations of customer support for a free product.

Today, Google now offers a number of paid services (e.g. Adwords search advertising) but it still brings its old customer service mentality to these free services.  I pay thousands of dollars a year in advertising to Google, and many others pay much more than this.   Unfortunately, there is absolutely no option for support from a real person on my advertising account.  Sure, there is a section marked "contact us" on their web sit, but all that is is a fairly lame troubleshooting script that does not lead to any sort of contact form or phone number. Just try searching "how do I contact google adwords" to see all the frustration.

I know many companies that are able to provide live support for a $12 purchase, much less a $1200 purchase.  Even Intuit Quickbooks, which pretty much defines the low end of customer service in my little world, is easier to reach than Google.

In the past, I have recommended Google Adwords because it gets results.  While that is still true, I have to withdraw my recommendation.  Right now, my account is effectively closed -- though not, as you might expect, in a fit of pique from 5 hours of trying to get an answer to a simple account question.  It's closed because something broke, and I cannot get it fixed.  The only workaround on the boards for this problem is to close my account (and lose all the records of past search terms used, campaign success details., etc) and open a new account.  Roughly the equivalent of tearing your house down to fix a bad electrical outlet.  No way.  I was looking for a way to economize and Google has apparently just volunteered themselves as my target.  Thousands of dollars of revenue tossed because they wanted to save five bucks of labor.

As can be expected, the media really did a poor job of covering the GM IPO, consistently underestimating the total public cost of the bailout (e.g. no one is mentioning the $45 billion in tax-loss carryforwards GM was allowed to keep, against all precedent).

But the real cost of the handling of the GM bankruptcy is in 1) the terrible precedents it set in hammering secured creditors to the benefit of favored political allies of the Administration and 2) the loss of the opportunity to get billions of dollars in production assets out of the hands of the people who have be sub-optimizing them.

It was this latter issue I have focused the most on, particularly in this post where I argued for letting GM die.  I said in part:

All these management factors, from the managers themselves to process to history to culture could better be called the corporate DNA.  ...

Corporate DNA acts as a value multiplier.  The best corporate DNA has a multiplier greater than one, meaning that it increases the value of the people and physical assets in the corporation.  When I was at a company called Emerson Electric (an industrial conglomerate, not the consumer electronics guys) they were famous in the business world for having a corporate DNA that added value to certain types of industrial companies through cost reduction and intelligent investment.  Emerson's management, though, was always aware of the limits of their DNA, and paid careful attention to where their DNA would have a multiplier effect and where it would not.  Every company that has ever grown rapidly has had a DNA that provided a multiplier greater than one"¦ for a while.

But things change.  Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet.  DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you.  When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.  The corporation is killing the value of its assets.  Smart people are made stupid by a bad organization and systems and culture.  In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years.  One could argue that GE did this, avoiding becoming an old-industry dinosaur.  GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough.  GM's DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do.  If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.

So what if GM dies?  Letting the GM's of the world die is one of the best possible things we can do for our economy and the wealth of our nation.  Assuming GM's DNA has a less than one multiplier, then releasing GM's assets from GM's control actually increases value.  Talented engineers, after some admittedly painful personal dislocation, find jobs designing things people want and value.  Their output has more value, which in the long run helps everyone, including themselves.

The alternative to not letting GM die is, well, Europe (and Japan).  A LOT of Europe's productive assets are locked up in a few very large corporations with close ties to the state which are not allowed to fail, which are subsidized, protected from competition, etc.  In conjunction with European laws that limit labor mobility, protecting corporate dinosaurs has locked all of Europe's most productive human and physical assets into organizations with DNA multipliers less than one.

There was a fair amount of blog reporting on GM's IPO papers, focusing on various outsized risks reported in those documents.   But for someone who has read a fair number of red herrings in the past, I can tell you these over-the-top risk statements are virtually pro forma.  The lawyers don't want any suits down the road about failure to disclose, so every risk up to and including getting kidnapped by evil trolls if you buy the offering are listed.

Via the Accounting Onion, I found an issues I have not seen well-reported.  Tom Selling argues that without some accounting shennanigans at its reorganization, GM's equity should be negative.   Reading between the lines, it does not appear that he is very confident that the SEC, which is a branch of GM's ownership group, will do much about it.

A couple of stories really drive the title of this post home to me.  First, flash back to any number of these type of stories

To Protest Hiring of Nonunion Help, Union Hires Nonunion Pickets

Billy Raye, a 51-year-old unemployed bike courier, is looking for work.  Fortunately for him, the Mid-Atlantic Regional Council of Carpenters is seeking paid demonstrators to march and chant in its current picket line outside the McPherson Building, an office complex here where the council says work is being done with nonunion labor.

"For a lot of our members, it's really difficult to have them come out, either because of parking or something else," explains Vincente Garcia, a union representative who is supervising the picketing.

So instead, the union hires unemployed people at the minimum wage"”$8.25 an hour"”to walk picket lines. Mr. Raye says he's grateful for the work, even though he's not sure why he's doing it. "I could care less," he says. "I am being paid to march around and sound off."

So we follow that up with this story of a union employee who was fired for... wait for it ... trying to unionize his fellow employees

In a move of stunning hypocrisy, the United Federation of Teachers axed one of its longtime employees -- for trying to unionize the powerful labor organization's own workers, it was charged yesterday.

Jim Callaghan, a veteran writer for the teachers union, told The Post he was booted from his $100,000-a-year job just two months after he informed UFT President Michael Mulgrew that he was trying to unionize some of his co-workers.

"I was fired for trying to start a union at the UFT," said a dumbfounded Callaghan, who worked for the union's newsletter and as a speechwriter for union leaders for the past 13 years.

Callaghan said he personally told Mulgrew on June 9 about his intention to try to organize nonunionized workers at UFT headquarters.

"I told him I want to have the same rights that teachers have," said Callaghan, 63, of Staten Island. "He told me he didn't want that, that he wanted to be able to fire whoever he wanted to."

The UFT has long strenuously resisted city efforts to make it easier for school administrators to fire teachers.

"This is the exact antithesis of what they preach, and Michael Mulgrew is the biggest hypocrite out there," Callaghan fumed.

As it turns out, when unions like the UAW get an ownership position in a company, they tend to act exactly like management

You could also entitle it "meet the new boss, same as the old boss". What I'm talking about is a recent meeting between UAW bosses and GM workers. To say it didn't go well would be a vast understatement)(via Sweetness and Light):

Workers at a General Motors stamping plant in Indianapolis, Indiana chased United Auto Workers executives out of a union meeting Sunday, after the UAW demanded workers accept a contract that would cut their wages in half.As soon as three UAW International representatives took the podium, they were met with boos and shouts of opposition from many of the 631 workers currently employed at the plant. The officials, attempting to speak at the only informational meeting on the proposed contract changes, were forced out within minutes of taking the floor.

The incident once again exposes the immense class divide between workers and union officials, who are working actively with the auto companies to drive down wages and eliminate benefits.

Actively working with the auto companies? They are part owners now of the auto companies "“ they're "management" for heaven sake.

In each situation, when the tables are turned, union leaders suddenly discover the economic realities those of us who run businesses have always understood, ie

• You don't pay more for labor than you have to.  That is what markets are about.  If good people are running around unemployed who are grateful to make $9 an hour, then hiring them is a win-win for both of you.  Setting an arbitrary price floor out of some notion of fairness merely leaves more people unemployed.  From the first story, this is a position the union never takes with any business but itself, but is certainly correct

The union's Mr. Garcia sees no conflict in a union that insists on union labor hiring nonunion people to protest the hiring of nonunion labor.

He says the pickets are not only about "union issues" but also about fair wages and benefits for American workers. By hiring the unemployed, "we are also giving back to the community a bit," he says.

• Its nearly impossible to run a business if one can't hire and fire at will.  If, once hired, it becomes impossible (e.g. through a tangle of grievance processes) to fire people, then no business can operate well
• Contrary to certain progressive notions, corporations do not have some sort of infinite treasury full of horded Nazi gold that can pay for any possible wage level.  Given product pricing in a particular industry as well as productivity levels, the labor budget is finite.  At GM, the reasonable labor budget is both finite and likely lower than its current level.  It is admirable at some level to see UAW officials dealing with this hard fact of fiscal responsibility (better, in fact, than are most government officials).  But one wonders how incentives could have been structured better in the past so that this epiphany could have been reached 30 years ago before the golden goose was already killed.

Several observers, including Megan McArdle, said that I was too harsh when I wrote this in a post about pre-employment screening:

I understand that this is exactly what the Left is shooting for "“ an environment where the competent have no advantage over the incompetent.  If employers are resorting to FICO scores, it just demonstrates how all the other reasonable avenues of obtaining information have been closed to them.

Unreasonable?  Perhaps.  Or perhaps not.  From the US EEOC site:

There is no Federal law that clearly prohibits an employer from asking about arrest and conviction records. However, using such records as an absolute measure to prevent an individual from being hired could limit the employment opportunities of some protected groups and thus cannot be used in this way....

Even if the employer believes that the applicant did engage in the conduct for which he or she was arrested that information should prevent him or her from employment only to the extent that it is evident that the applicant cannot be trusted to perform the duties of the position when

• considering the nature of the job,
• the nature and seriousness of the offense,
• and the length of time since it occurred.

...

Several state laws limit the use of arrest and conviction records by prospective employers. These range from laws and rules prohibiting the employer from asking the applicant any questions about arrest records to those restricting the employer's use of conviction data in making an employment decision.

This means that a company cannot, according to the EEOC, maintain a blanket policy of, for example, never hiring anyone convicted of murder or bank robbery.  Just take that as your happy thought for the day next time you are snuggling up for bed at night in some hotel, wondering if you are in a state where the hotel was allowed to screen its night-time employees for felonies.

My sense is that the Left is shooting for employment based on paper qualifications rather than perceived capability.   I wrote before that the Left has cheered on tort actions that have almost shut down the provision of job references.  Or look at civil service or schools.  Hiring is based on minimum qualifications (e.g. possessing the correct teaching degree) rather than ability.  Promotion is based on seniority rather than performance.  Every grievance system ever invented makes it almost impossible to fire employees even for cause, much less for performance shortfalls.

This week in Forbes, I argue that tallying up the taxpayer money that has been poured into GM actually under-estimates the price of the bailout.

So what if the U.S. government had let GM's bankruptcy proceed unhindered? Allowing the GMs of the world be liquidated, with their assets and employees taken up by more vital entities, is critical to the health of our economy and the wealth of our nation. Assuming GM's DNA has a multiplier below one, releasing GM's assets from GM's control actually increases value. New owners of the assets might take radically different approaches to the automobile market. Talented employees who lose their jobs in the transition, after some admittedly painful personal dislocation, can find jobs designing and building things people want and value. Their output has more value, which in the long run helps everyone, including themselves....

This is the real cost of the GM bailout--not just tens of billions of dollars of wasted taxpayer money, but continued unimaginative use of one of the largest aggregations of wealth and talent in the world.

I am not sure that Tiger Mike Davis was really missed in the business world after his bankruptcy, but I have to say that my reaction to these memos of his (via Tom Kirkendall) waiver back and forth between "what an asshole, glad I never worked for him" and "too bad political correctness has purged the world of a lot of real characters."

The memos seem to have a common theme of reminding everyone who is boss.  I run a 500-person business and have never in 10 years felt the need to remind any employee that I was boss, or to make it clear that I was somehow subject to different rules.  I could subject myself to different rules, but the downsides of doing so would be large and fairly predictable.  I try to work at least as hard as everyone who works for me.

If I was, say, LeBron James and 99% of the value created among myself and the circle of people working for me was created by me, I might see copping an attitude.  But since 99% of the value in my company is created by someone who works for me, I spend most of my time convincing my employees that I don't know everything and that I am therefore reliant on their ideas and initiative.  A long while back I wrote that I tend to hide my degrees from Ivy League schools from my employees, as these tend to intimidate people into assuming I know more than they do.  This may be a correct assumption about, say, the origins of the reformation or solution approaches to partial differential equations.  It is not correct, however, when it comes to knowledge of day to day operating issues (and their potential solution) at our facilities my employees manage for me.

Interestingly, and almost inevitably, Tiger Mike seems to have a problem with his employees not sharing information or ideas with him, as evidenced by this memo:

Been doing research on grain elevators for my model railroad.  Ran across this video that I thought was pretty interesting.  I liked seeing the guy trying to keep the old technology working, and it was interesting to me to see this one guy do everything.  In the city, OSHA and the DOL would probably require 6 different guys on the shift.  The best part was seeing this older dude shoving a boxcar around by hand to position it for loading (around 8:40).

Megan McArdle writes:

There was a great deal of back-and-forth in the left half of the blogosphere this weekend over employers who use FICO scores as a way of weeding out job candidates.  In a sort of peculiarly American fashion, our nation seems to have decided that one's credit history is a good proxy for one's worth as a human being, and thus should be used to determine eligibility for everything from employment to excellent rates on car insurance.

I have no trouble believing that the FICO score is often a proxy for what some researchers call conscientiousness; I've certainly had roommates and others around me who had terrible credit because, well, they didn't bother to pay their bills, and regarded rent as something optional that could be turned in if no more exciting commercial opportunities immediately presented themselves.

That said, it's going to be at best a weak proxy.  It's also a proxy for things that, as a society, we may not want employers to consider, like a past history of depression.  And for things that have nothing to do with your job performance, like a car accident that left you with huge medical bills and no job, or a sudden job loss.  Looking at our national savings rate, lots and lots of Americans live very close to the edge of their paychecks; they can't all be terrible employees.

I have never really even considered asking employees for their FICO score, in part because all small business people hate these scores as, even with perfect credit records, our scores tend to be smaller than people with similar income and history due to the constant credit checks made on us by vendors and other partners.

That being said, as someone who has 500 service employees working for me, I understand the insatiable desire for information on employee reliability and conscientiousness.  A large number of our employees we hire who interview well tend to get released within 60 days of their hire.  I can't tell you how many people who seem totally normal and friendly turn out to be raving maniacs in stressful customer contact situations.

The elephant in the room that neither McArdle or folks like Kevin Drum mention is that businesses are starved for reliability information on potential employees.  It used to be the best source was to check job references.  Nowadays, though, very few employers will give a honest job reference, or will provide any information at all.  I know I am guilty of that -- my company does not allow any manager to give out performance data on past employees.  I only needed to be sued once over somehow interfering with someone's living by giving honest information about that employee's reliability to change my behavior.

I understand that this is exactly what the Left is shooting for - an environment where the competent have no advantage over the incompetent.  If employers are resorting to FICO scores, it just demonstrates how all the other reasonable avenues of obtaining information have been closed to them.

The only saving grace in this country is that employment is still mostly at-will, meaning we can fire our hiring mistakes and move on.  Of course the Left wants a European-style system where it is impossible to fire anyone too -- this is the system the post office has, and one can see how well it works out.  If they are victorious on this final front, I will be forced into a game of Russian Roulette, where I can't find out anything about those I hire, I can't fire the incompetent people I do hire, and I am infinitely legally liable for any mistakes any of these employees make.

Apple's response to their antenna / reception issues appears to be:  the other guys started it.  via Engadget

Update: I thought this was funny

Despite the issues, Mr. Jobs called the antenna design the "most advanced" ever on a smartphone. He said the rate of dropped calls for the iPhone 4 was only slightly more than on the previous version, the iPhone 3GS.

So the "most advanced" version performs worse than the old version.  How are we using the term "advanced" here?  No horse in this race personally, as I have a Motorola Droid.

As explained by Steven Pearlstein, who presumably has created so much economic value in his lifetime that he can cast stones from the high ground

And some of it, to be quite frank, Robert, is an appalling lack of imagination and guts on the part of these same CEOs who are complaining and pointing the finger at every else. You know, these guys are very good at cutting. They're very good at blaming others. They're a little less good at coming up with creative new products and services, and they've got a little flabby in that regard in the last few years where the focus has been on surviving and cutting, as it should had been. But they're not the gutsiest group of people in the world.

And by the way, they get into this group think which you - you know, the fact that they all say it, it's sort of like a notion that starts in the country club locker room, and everyone is nodding, and then the one passes it on to the other. And now, you know, this similarity of the comments betrays this sort of group think that is almost self-fulfilling at this point.

Mr. Pearlstein is absolutely right.  As CEO of my company, I am out of creativity.  I will give you an example.  The new health care law appears (the implementation is still hazy) to impose a $2000 penalty per employee for not having a corporate health care plan (all my employees are retired, so they already have health care plans, but that does not affect the penalty).  With a bit over 400 employees, that makes the penalty something north of $800,000 a year.  This is larger than my annual net income.  And Mr. Pearlstein is correct -- I am absolutely at a loss as to how to deal with this, which just proves his point that all we CEO's have an appalling lack of creativity.

Mr. Pearlstein seems to be holding an image of the Fortune 25 in his head, but in fact most job creation is by smaller companies.  I wrote a while back on Forbes.com why CEO's of smaller companies have be having their creativity diverted.

Postscript: On January 10, 2008, our company actually, shockingly, had a creative idea.  Instead of refueling our boats at a lake in Ventura County, CA using zillions of 5 gallon gas carriers, lets put in a small double wall gas tank.  It would save a ton of useless labor, it would greatly reduce fuel spills on the lake (the nozzle, unlike the 5 gallon cans, has overflow protection), it would save lots of trips into town to fill gas tanks -- a winner all the way around.  Granted this was a pretty small idea, but sometimes success in small business is a lot of bunts and singles.

After hundreds of manhours of effort, numerous checks written to the County and the state, and I don't know how many forms filled out, on July 1, 2010, exactly 901 days after we got the creative idea, Ventura County gave us the last permit we needed to go forward.

Tyler Cowen writes:

If aggregate demand is so low, why are profits so high?

TJIC responds

SmartFlix  [TJIC's company] has show paper losses every year it's been in existence "¦ but I expect that this year it will show it's first ever paper profit.

"¦which is not a sign of macroeconomic health, but is, in fact, a sign of my very poor expectations for the economy.

Ditto here. We will probably show our largest paper profit this year, but it is mainly because we have cut way back on investment in new projects.  And this has nothing to do with demand - we are experiencing a boom, as the recession pushes Americans towards lower cost recreation of the type we operate, at the same time it cuts state budgets and makes them more amenable to our business model of private operation of public parks.

So why are we cutting back investment?  I run a very low margin service business. Here is a simplified calculation: We make, say, 8% of revenues before taxes and accelerated depreciation. 50% of our costs are labor, and the new health care law may raise our labor costs by 8% or even more.  A four percentage point cut in margins is not a big deal to Microsoft, but it is to us.  Until we figure out how this all will play out, we are still investing but only in above-average opportunities.

When we invest in a new project, it hits that year's income in two ways.  First, we have accelerated depreciation on the new capital equipment.  And second, we typically have a startup loss in the first year.  In the last few years of rapid growth, we have had close to zero paper earnings because of these growth effects.  Once we take our foot off the pedal this year, though, we will show a large positive income.  For us, reduced growth and investment = higher short term reported profits.

As someone who once spent nearly a hundred hours to defeat a $20 Department of Labor claim, mainly to fight the precedent, I can sympathize 100% with Wal-Mart spending millions to fight a $7,000 OSHA claim.  Note that despite all the OSHA wailing about not understanding why Wal-Mart is fighting so hard and causing them so much trouble, they admit at the end that they are trying to set a precedent for future actions.

For several years I worked for Emerson Electric, which among its many divisions owned a ladder manufacturer.  If there ever was a product that simply is what it is, totally WYSIWYG, it's a ladder.  But it turns out in this age of personal responsibility that anyone who ever gets hurt using a ladder, usually doing something stupid, will sue the ladder manufacturer for his or her injury.  Emerson fought every one, all the way to trial and sometimes appeal.  Lawyers said they were crazy, that in any given case, it would be cheaper (considering legal fees) to just settle.  But Chuck Knight (Emerson CEO) knew that these were not individual cases, they were multiple events in an ongoing "game," and game theory gives a different answer.  Fight enough of these, and tort lawyers looking for a quick buck with little work and cost will choose to spend their time elsewhere.

If it is one thing I have learned after reading "green" sites like this one, most greens don't seem very thoughtful about parsing green claims.  So this fairly outrageous ploy by hotels will probably work:

Guests checking into the Westin Kierland Resort and Spa or Sheraton Phoenix Downtown Hotel can do more than order breakfast or request privacy by hanging a card outside their door.

They can also decline daily housekeeping service.

The hotels are among a small but growing group who have taken their in-room "green" initiatives up a notch, adding the option of no cleaning on top of existing options to reuse towels and forego fresh sheets.

What a great idea!  Redefine green as "not doing the basic job you are paying me to do."   This is amazing chutzpah, and at some level I tip my hat to them.  Spot a market inefficiency -- in this case the incredible gullibility of the greens -- and exploit it.

Am I the only one who is wildly less likely to buy an Audi after Sunday?   Advertising is often about image.  Frankly, almost none of the ads yesterday addressed their product's or service's value propositions in any real way.  They are trying to connect their product with images and emotions - Coke has always been great at that.  Beer commercials always try to connect their product with, well, sex with hot women.  This is pretty traditional for beer, though less so for ISP hosting until GoDaddy came along.

So now "Audi" has been permanently tied up in my mind with intrusive state control and loss of individual liberty.   Perhaps they were trying to be funny, but I really got the impression they were more than half serious, maybe because several of the examples (composting, light bulbs) are real issues subject to state control even in parts of this country.

Update: Obama appointee expresses need for SWAT teams in neighborhoods to enforce energy efficiency.

Via the WSJ, on the Mortgage Banker's Association (MBA) being underwater on their real estate loan:

On Friday, CoStar Group Inc., a provider of commercial real estate data, announced that it had agreed to buy the MBA's 10-story headquarters building in Washington, D.C., for $41.3 million. The price is well below the $79 million the trade group says it paid for the glass-walled building in 2007, while it was still under construction. The price also falls short of  the $75 million of financing that the MBA received from a group of banks led by PNC Financial Services Group Inc. for the purchase.

John Courson, chief executive officer of the trade group, declined in an interview Saturday to say whether the MBA would pay off the full loan amount. "We're not going to discuss the financing," he said. A spokeswoman for the MBA added that the MBA has reached "an agreement with all relevant parties" regarding the outstanding amount on that loan but declined to provide any details.

...In an interview late last year, Mr. Courson said he believed mortgage borrowers should keep paying their loans even if that no longer seemed to be in their economic interest.  He said paying off a mortgage isn't only a matter of personal interest.  Defaults hurt neighborhoods by lowering property values, Mr. Courson said. "What about the message they will send to their family and their kids and their friends?" he asked.

A reader sent me this list at of salaries at BART (via here).  The amazing thing is to sort the list by overtime.  Pages and pages of people with $50-$100 thousand a year in overtime.  This is just insane.  Either put these guys on salary or, if it really is a job that is non-exempt and legitimately pays hourly, hire some more freaking people.  I can't in my wildest dreams imagine such overtime being paid in my company year in and year out.  If it is not for isolated cases, it is a sign of poor management.

I have been kind of amazed at the backlash at Amazon over its showdown with Macmillan Publishing.  As I understand it, Apple, with its new iPad, had adopted a strategy of wooing publishers by offering promises of higher retail prices, an offer Amazon basically refused to match.   This dynamic (with retail discounters pleasing customers but ticking off manufacturers and product suppliers) is not at all new to retail.  I am sure a lot of manufacturers wish Wal-Mart was never invented, but they have to try to play ball with them because Wal-Mart wields so much power with customers, in large part because of their pricing.

In this sense, I have always thought of Wal-Mart and Amazon as my agents, using the power of my and other consumer's volume to pound manufacturers on price.  They serve the same role as, and in fact are more effective than, a buying cooperative or consumers union.

So my agent, Amazon, had to go to the mattresses with a publisher on its pricing.  This happens in all negotiations -- if you are not willing to walk out the door, then at some point there is a limit to your bargaining power.  I was ready to applaud them for it.  Sure, they had selfish interests of their own, but who cares?  That is how capitalism works -- through the alignment of incentives, people who really don't even know me or really care if I live or die work hard to create value for me  (this is the opposite of big government, where people who claim to care about me deeply work really hard to destroy value).

Anyway, the clients that Amazon represents apparently lost faith quickly, and decided they were more freaked out by a couple day blackout than increased retail prices.  Wimps.

Postscript: I understand the debate is a bit more subtle, with Macmillan arguing that they want price flexibility over a range from $6-$16 (or whatever) for e-books rather than a hard cap at $9.99.  Trust me, though, any inference that this approach roughly averages Amazon's approach is so much chin music.  Most sales would be for new books at the high price, with low-volume books at the lower price  (something, by the way, Amazon already does).  The average sales price is higher in the Macmillan approach, and I don't blame them for trying.  And Apples is just trying to differentiate itself, and attempting to lock up publishers into exclusives or sweetheart arrangements fits their proprietary business model.   So I am not crying foul, I simply was rooting for Amazon because I felt my interests as a consumer lay with them in this dispute.   And I am wondering why so many people see it differently.

I had an idea, and I wondered if any of you were familiar with a program like this.  I can provide a pretty decent internship job for a motivated high school student in the summer at my company.  I have a motivated high school student who is my son.  However, from a college admissions perspective, and frankly from an experience perspective, it would be better if my son worked for something other than the family business.  I wondered if there might be an opportunity for a sort of entrepreneur's internship swap, to exchange kids for the summer to work in each other's businesses. I am toying with a website idea if such a thing does not exist.

As a follow-up bleg, our family's philosophy is to try to have our son use his summers to test out potential interests to see if they are really something that interest him once he has seen the inside of it.  To that extent, he is researching summer internships in three highly diverse (to say the least) areas:

• international affairs, particularly comparative government systems and the interactions of different cultures and governments
• astronomy and space exploration  (greater emphasis on observation than theory)
• sports journalism, particularly analysis and production and possibly writing rather than being a broadcast personality

Anyone who might be familiar with a summer program for incoming HS juniors is encouraged to comment or drop me a quick email with a pointer.

My brother-in-law's book, "The Constant Contact Guide to Email Marketing," is doing quite well on Amazon.   After the early spam-crazy days, email marketing has really had to rebuild itself from the ground up.  I am a big believer in it, and can highly recommend his company Constant Contact as a email service.  I have several accounts and have set most of the non-profits I work with on it.  In his book, Eric discusses email marketing in the context of both customer acquisition and loyalty.  With Google clicks going for $2 or more, email remains a great value if done right.

Tiffany's is (hypothetically) handing out coupons for 50% off diamond necklaces.  This generates a lot of press, but you do not get a coupon.  Are you, without a coupon, more likely to buy a necklace anyway given all the publicity?  Or is your behavior unchanged, because you received no inventive?  Or are you perhaps less likely to buy, with the full retail price you would be paying now seeming higher as compared to the 50% off others are getting?

This issue seems to be at the heart of the conflict between the Obama administration and Edmunds.com (what is it about this administration and picking battles with media companies?)  In their analysis, Edmunds said that only about 250,000 of the auto sales during the cash-for-clunkers period were incremental.  The White House says they are underestimating, because even people who did not qualify for the program bought more cars because of the program:

The White House said [totally great car-buying, car-selling, and all-around-awesome-info site for every goddamn great and awful car website] Edmunds based its analysis on the "implausible" assumption that "the market for cars that didn't qualify for cash for clunkers was completely unaffected by this program. In other words, all the other cars were being sold on Mars, while the rest of the country was caught up in the excitement of the cash for clunkers program."...

Edmunds stands by its analysis.

"Instead of shooting the messenger, government officials should take heart from the core message of the analysis: The fundamentals of the auto marketplace are improving faster than the current sales numbers suggest," [Edmunds jefe Jeremy] Anwyl wrote.

The central issue, Anwyl said, "is how many of these sales would have occurred anyway. Apparently, the $24,000 figure caught many by surprise. It shouldn't have. The truth is that consumer incentive programs are always hugely expensive when calculated by incremental sales -- always in the tens of thousands of dollars."

Edmunds rejected the White House suggestion that people got caught up in the excitement of the program and bought cars, even if they didn't qualify. And it discarded the notion that automakers boosted production solely because of the program.

"No manufacturer increases production, a decision with long-term consequences, based on the 30-day sales blip triggered by an event like cash for clunkers," Edmunds wrote.

Its an interesting question.  I would tend to come down on Edmunds' side from my own experience running promotions, but it is not totally cut and dried.  I can think of at least two examples where a discount to person A yields more sales to person B, but neither are really applicable here

• Example 1:  Ladies night.  Cheap drinks for the ladies bring in male customers, on the theory that that are looking for bars with, frankly, lots of drunk women
• Example 2:  Kids eat free.  Restaurants have programs with discounted or free kids meals to get their parent's business

I think one could actually make the argument that people who did not get the clunker discount would be less likely to buy, as its really hard to buy something for X when you know all the people around you are getting it for (X-$3000)**.  This isn't an absolute rule - after all, people fly all the time next to folks who paid more or less for the same service.  But I do think it is a psychological issue that would tend to offset the general excitement around the program.  In the end, we won't have to guess, once we get sales data for the rest of the year and we can see if clunkers merely moved sales forward a few months or generated incremental sales.

**  As shown here, cash for clunkers amounted to about a $3000 subsidy per buyer, above and beyond the blue book value of the car turned in.

Tom Selling and Pat Walters are looking for participation in their survey on issues related to IFRS (international accounting rules) and their migration to the US.  Folks knowledgeable about these issues, either from the accounting or management side, are encouraged to participate.  Tom wrote this invitation:

This is a brief announcement of an online IFRS survey that I have prepared with Pat Walters of Fordham University.

I invited Pat to collaborate with me because we have divergent views on the questions being asked.  Thus, I hope that together we have achieved a modicum of balance in the survey's design--particularly in the phrasing of the questions and response choices offered.  There are only 12 multiple-choice questions, and afterwards, I cordially invite you to express your own opinions regarding its design by posting a comment to this blog post.

We are also trying to reach many more stakeholders than any other survey has reached to-date on the IFRS adoption/convergence question.  To that end, we hope you will choose to email the link at the bottom of this post to anyone else whom you think might have an interest in taking it.

Pat and I thank you in advance for clicking here to take the survey, or by pasting this ugly link in your web browser:

http://www.surveymonkey.com/s.aspx?sm=pF0E3UgdSV_2bHMQvdAnXv8w_3d_3d

I wondered aloud last week at the fact that I when I raised my annual health care deductible to $2500, my annual premium savings were over $3000.   Which meant that from an economic standpoint, it was crazy to do anything but have a high-deductible health plan (even without considering the knock-on effects to the overall system of my now wanting to actually price shop for services).

TJIC offers one explanation that seems reasonable to me:

What kind of person is unwilling to pay the first $2,500 out of pocket? A person that intends to make lots of claims.

They know that they're going to use much of that first $2.5k.

Question: between one person who has no intention of going to the doctor for every little thing, and another person who does, let's assume that both get broken legs, which push them each to $5k in expenses "¦ which one is going to demand more follow up visits, cancel and reschedule more often, demand an extension on their course of painkillers, etc. ?

The one who was intending to use lots of service down at the low end, I'd wager my middle nut.

Three other possible explanations:

• As alluded to above, it is in the insurance company's interest to get their customers to start actively price-shopping for some medical services, so they encourage high deductible policies.
• Claims in the deductible range tend to be small and carry a disproportionately high overhead / processing cost as a percentage of the claim amount
• It is an economic IQ test, with results somehow correlated to attractiveness as a customer

This latter theory results from my experience at McKinsey & Co, a management consultant.  When I joined, they offered a $5,000 one-year interest-free loan to cover relocation costs.  As I became more senior and was responsible for hiring new consultants, some of them would come to me and say "that's OK, I don't need the money."  I would look at them and respond, "we aim to hire the best young business minds in the country.  If you turn down an interest-free loan, we may have to rethink our hiring decision.  Go sock it in a 12-month CD like I did."  My personal theory was the offer was really an IQ test, not a benefit.

I am a little behind on this, but Megan McArdle had this from Joe Wiesentahl, on the importance of loan down payments to prevent fraud and foreclosure:

The author, Michael Richardson, owned a Colorado mortgage company that was busted by HUD for processing too much fraudulent paperwork.  This caused him to discover that unbeknownst to him his employees were (on their own) engaging in mortgage fraud, prompting him to write this book and try to warn the industry.

This alone is interesting -- that even on the small-time level, there was an information problem (bosses not knowing what the underlings were doing) -- and the book is rich with details about the nuts and bolts of mortgage fraud.

But beyond that, one point he makes clear -- and remember, this is before 2005, so before the crash and before conservatives blamed government intervention in the housing market for the crash -- is that the FHA's subsidization of $0-down loans made it all possible.

If you make someone pay 10% or 20% of a house's cost upfront, then there's no way you can alter the paperwork enough to make an ineligible buyer buy a house for an inflated price. But once you drop that requirement, everything goes. You can sell any house to any buyer for any price as long as you put in the effort to falsify documents and go through the cumbersome legwork.