Coyote Blog

A while back I lamented that so few people actually strive to maintain a consistent personal philosophy, rather than a hodge-podge of isolated political views.  In this context, I thought the profile of "progressive" Markos Moulitsas Zuniga (the Daily Kos) by the sympathetic progressive-liberal Washington Monthly was interesting.  For example:

The younger-than-35 liberal professionals who account for most of his
audience seem an ideologically satisfied group, with no fundamental
paradigm"”changing demands to make of the Democratic Party. They don't
believe strongly, as successive generations of progressives have, that
the Democratic Party must develop more government programs to help the
poor, or that racial and ethnic minorities are wildly underrepresented,
or that the party is in need of a fundamental reform towards the
pragmatic center"”or at least they don't believe so in any kind of
consistent or organized manner. As this generation begins to move into
positions of power within the progressive movement and the Democratic
Party, they don't pose much of a challenge on issues or substance. So
the tactical critique takes center stage.
Moulitsas's sensibility suits his generation perfectly. But it also
comes with a built-in cost. Moulitsas is just basically uninterested in
the intellectual and philosophical debates that lie behind the daily
political trench warfare. By his own admission, he just doesn't care
about policy. It's here that the correlation between sports and
politics breaks down. In sports, as Vince Lombardi is said to have put
it, "Winning isn't everything, it's the only thing." When the season is
over, you hang up your cleats and wait for the next season. But in
politics, that's not the case"”you have to govern, and if you don't
govern well, you won't get reelected. So while tactics and message are
crucial, most voters will ultimately demand from politicians ideas that
give them a sense of what a party is going to do once in power. Wanting
to win very badly is an admirable and necessary quality in politics,
and Moulitsas is right that Democrats have needed it in greater
quantity. But it is not really a political philosophy.

This article tends to reinforce a notion I have had of late, that is a trend toward political party as fashion statement.  For example, I get the impression that many of Kos's audience call themselves Democrats more because of the statement they think it makes about themselves rather than a thought-out comparison of the various party's positions and how they stack up vs. their own thought-out philosophy.  I am starting to sense that people choose parties for their brand-image rather than for the actual positions or people who represent them.  Democrat might mean "I am smarter than you", "I am with-it and cool", "I am dynamic" while Republican might mean "I am patriotic", "I am moral", "I am level-headed".  By the way, don't send me mail for the wrong reasons -- I am not saying the parties actually consistently meet these images, I am just saying that a large number of people seem to adopt their party to make these kind of statements about themselves.

Postscript:  If you think I am exaggerating, then someone needs to explain to me how a Democratic president can send us to war in Bosnia with Republicans opposing and then have a Republican president send us to war in Iraq with Democrats opposing when at the 40,000 foot level they are the same freaking war (US intervention to unseat a genocidal dictator with at best unclear UN mandate and opposition from key European nations).  I keep coming back to the simplistic explanation that the default political position is "I got my guy's back no matter what, and you guys suck no matter what", which I admit effectively compares the current political discourse to the chants at a Michigan-Ohio State football game, but I'm going to go with it.

PPS-  As a good libertarian, though, I am happy to know that young progressives are not necessarily pushing for more state control.

Today is the anniversary of one of my favorite bits of Phoenix history.  Many people have seen the Steve McQueen movie "the Great Escape",
about a group of 60 or so prisoners who cleverly dug a tunnel out of a
German POW camp and escaped in various directions across Europe, many
of whom where eventually recaptured.

I don't know if such an event occurred in Europe, but an almost
identical real-life POW escape (tunnel and all) occurred right here in
Phoenix, Arizona almost exactly 60 years ago.

Like many isolated western towns in WWII, Phoenix played host to a
number of German POW's, in our case about 1700 in Papago Park.
Phoenix, and in particular Papago Park, with its arid climate and red rocks, must have been quite a culture shock to the Germans.

Anyway, I won't tell the whole story, but it is fascinating and you can read it all here.  A short excerpt:

The
German prisoners asked their guards for permission to create a
volleyball courtyard. Innocently obliging, the guards provided them
with digging tools. From that point on, two men were digging at all
times during night hours. A cart was rigged up to travel along tracks
to take the dirt out. The men stuffed the dirt in their pants pockets
which had holes in the bottoms, and they shuffled the dirt out along
the ground as they walked around. In addition, they flushed a huge
amount of dirt down the toilets. They labeled their escape route Der Faustball Tunnel (The Volleyball Tunnel).

They
dug a 178 foot tunnel with a diameter of 3 feet. The tunnel went 8 to
14 feet beneath the surface, under the two prison camp fences, a
drainage ditch and a road. The exit was near a power pole in a clump of
brush about 15 feet from the Cross Cut Canal. To disguise their plans,
the men built a square box, filled it with dirt and planted native
weeds in it for the lid to cover the exit. When the lid was on the
tunnel exit, the area looked like undisturbed desert.

There
is some dispute about how many people actually escaped -- official
records say 25.  Others argue that as many as 60 escaped, but since
only 25 were recaptured, 25 was used as the official number to cover up
the fact that German POW's might be roaming about Arizona.

The prisoners who led this escape were clearly daring and inventive,
but unfortunately in Arizona lore they are better known for their one
mistake.  Coming from wet Northern European climes, the prisoners
assumed that the "rivers" marked on their map would actually have
flowing water in them.  Their map showed what looked like the very
substantial Salt River flowing down to the Colorado River and eventual
escape in Mexico.  Unfortunately, the Salt River most of the year (at
least in the Phoenix area) is pretty much a really wide flat body of dirt.  The German expressions as they carried their stolen canoes up to its banks must have been priceless.

It
never occurred to the Germans that in dry Arizona a blue line marked
"river" on a map might be filled with water only occasionally. The
three men with the canoe were disappointed to find the Salt River bed
merely a mud bog from recent rains. Not to be discouraged, they carried
their canoe pieces twenty miles to the confluence with the Gila river,
only to find a series of large puddles. They sat on the river bank, put
their heads in their hands and cried out their frustration.

We probably shouldn't make too much fun of these hapless U-boaters, living in a land so far out of their experience:  Apparently the prison guards made Sargent Schultz look like Sherlock Holmes:

Although
the men left in the wee hours of Christmas Eve, the camp officials were
blissfully unaware of anything amiss until the escapees began to show
up that evening. The first to return was an enlisted man, Herbert
Fuchs, who decided he had been cold, wet and hungry long enough by
Christmas Eve evening. Thinking about his dry, warm bed and hot meal
that the men in the prison camp were enjoying, he decided his attempt
at freedom had come to an end. The 22-year old U-boat crewman hitched a
ride on East Van Buren Street and asked the driver to take him to the
sheriff's office where he surrendered. Much to the surprise of the
officers at the camp, the sheriff called and told them he had a
prisoner who wanted to return to camp.

One
of the last to be re-captured was U-boat Commander Jürgen Wattenberg,
the leader of the breakout.  Interestingly, Captain Wattenberg hid out
in the hills just a few hundred yards from my current home.

Note:  I self-plagiarized this story from a post I made a year ago.  If the repetition bothers you, I am happy to refund you the full subscription price you paid for this site.

Personally, I think you are insane to be a CEO or a board member of a public company under Sarbanes-Oxley.  There is no way I am going to sign a document on threat of prison that no one of the thousands of employees who work for me did anything to screw up the books.  Heck, I run a private company owned only by me where there is no incentive other than to report the numbers like they are, I sit next to my bookkeeper who is the only other one who touches the books, and I still find errors from time to time in past periods.

But what got me going on this post was a TV interview I tuned in the middle of last week.  I can't find a version online or even the name of the people interviewed, but the gist of the discussion was how Sarbanes-Oxley was going to prevent Enron-type situations that bankrupt investors.

I wonder how many people believe this?  Because Enron was going down, with or without the accounting shenanigans.  Its trading-based business model followed a life-cycle that should be familiar to anyone who has been in trading -- that is, they had unbelievable margins early on, but as others figured out what they were doing and duplicated it, the margins narrowed.  As trading margins narrow, the only way to maintain profits is to increase volume, leveraging up your capital into larger and larger trades at narrower and narrower spreads.  This volume strategy requires a very low cost of capital, which means low borrowing costs and a high stock price.  By hiding debt and losses in off-book subsidiaries, the Enron managers may have delayed the ultimate reckoning (by keeping equity prices high and its bond yields low), but the accounting games were not the cause of the failure.  In the same way, the march of long distance rates towards zero ultimately brought down Worldcom, not accounting.  In the latter case, if you borrow lots of money to buy long-distance companies, as Worldcom did,  assuming say 20 cent per minute long distance rates and then the rate goes to 5 cents, you are probably in trouble.

I am all for curbing the imperial CEO and giving shareholders and boards more power to police accounting and establish transparency.  I am not sure SarbOx does any of this.  My gut feel is that five years from now we will view SarbOx as more of an enabler for state attorney general self-promotion (as each races to try to prosecute some high-profile CEO for arcane accounting errors) and tort bar shenanigans.

I am honsetly curious, do any of you, as equity holders, feel better about your equities today with SarbOx than without it, especially given the added expense every company has had to take on?  It would be interesting to test the market's perceived value of SarbOx by allowing shareholders to vote to opt in or out of SarbOx.  Not only would their voting be interesting, but, if they opt out, it would be interesting to see if the stock price goes down (meaning SarbOx has perceived value) or up (meaning SarbOx is mostly perceived as extra regulatory expense).

After you finish this post, I have an updated post on the same topic here.

Well, the US trade deficit is up again, and you can be sure the news was accompanied by a lot of moaning and groaning and soul-searching.  The main reason that all the media and the majority of Americans freak out over large trade deficit numbers is that they look at the American economy as a large bank vault with a fixed supply of money on the shelves.  They reason that if more money is going out of the vault to buy things than is going back in from sales, then eventually the vault will go empty and we will be bankrupt.  Either implicitly or explicitly, those who fear trade deficits perceive the trade imbalance to be red ink, something bleeding out of a fixed supply.

This view of the trade deficit as a being a growing and unsustainable debt is wrong.  I will try to explain in a couple of ways.

The micro view

Lets first look at it from the perspective on one individual.  Lets say Fred made $50,000 this year, and lives in a US where, before he makes his spending decisions, trade is exactly in balance with China.  Fred spends some of his income on rent, and invests some in some nice US equities.  And he takes $1000 of what he just made that he might have saved and buys himself a nice Chinese-made plasma TV so he can really enjoy the Superbowl next year.

So, where's the debt?  One can argue that net savings is lower (perhaps - we haven't gotten yet to where the Chinese are spending their extra US dollars), but Fred seems to have increased the trade deficit without incurring any debt.  In fact, Fred is actually better off, since in a free society no one engages in a transaction that doesn't return more value than one spends.  In this case, the plasma TV provides more than $1000 of value back to Fred, or else he would not have engaged in the transaction. 

Yes, many people are buying Chinese TV's with consumer debt, but these same people are buying much more American stuff with consumer debt as well.  To the extent that there is or is not a "problem" with people taking on too much consumer debt, this problem is absolutely unrelated to the country of origin of the goods they are buying.  You can max out your Visa card on American stuff just as easily as on Chinese stuff.

But wait, you say.  The reason the debt is not obvious is from the way I structured the problem.  I assumed the rest of the economy was static while Fred was making his decision.  But if Fred had bought American, somewhere in the US economy there must have been less debt.  So we will tackle this next.

The Economy is Not Zero Sum

Repeat please:  The economy is not zero-sum.  Never has it been so hard to convince people of a concept that should be so obvious.  I used up bushels of electrons explaining why the economy is not zero sum here, but the short proof is easy:  Look at the world in 1900.  Look at it today.  The world as a whole and most every individual is far richer.  The fact is that economies create wealth every day, and free economies create a LOT of wealth.

At the heart of every argument that the trade deficit is bad is the mercantilist notion that the US economy is a bank vault leaking funds.  But this analogy that seems to be in everyone's head is flawed.  The supply of money or wealth in the US, in the vault, is constantly growing.  If you really have to think of it as a vault, then think of what's inside as rabbits rather than gold bars.  Does anyone doubt that if you start with a hundred rabbits and every year sent a few to China that you might still have more rabbits than you started with in the vault?  A free economy is like a group of rabbits on Viagra.  Even if the Chinese took billions of dollars they got from selling goods to the US each year and burned the money in a big bonfire, the US still would be growing in wealth.

Of course, the vault analogy sucks for a larger reason, that the US economy is deeply integrated with that of the rest of the world.  In fact, much of the wealth creation comes from this very integration, providing a more robust division of labor and a deeper well of creativity and entrepreneurship than any one country could achieve on its own.  And the dollars we send overseas don't stay there, they come back.  But we will address this next.

So What do the Chinese do with Those Dollars?

OK, so we are all short-sitedly (at least according the the "progressive" intelligentsia) sending dollars to China to satisfy our consumerism.  So what do those Chinese do with those dollars?  They can't spend them domestically, because stores and vendors in China don't accept dollars any more than the Wal-mart down the street from me accepts Yuan.

Most all the dollars have to come back to the US, or the person in China holding them gets no value.  You could say, well that person can take them to the bank and exchange them for Yuan, and that is true.  But that bank would not accept the dollars for exchange unless it knew it could get them back to the US, or had another client that needed them to make a purchase in the US.  So, the dollars will have to come back to the US to purchase something.

Some of the dollars come back to purchase US goods and raw materials, but of course this is less than the total dollars the Chinese have to spend, or else there would be no trade deficit.  In fact, this all that the words "trade deficit" really means.  It means that of the dollars the Chinese receive from sales to the US, only a portion is used to buy American goods that are shipped back to China.  The rest goes to buy American .. something else.

What?

Well, some of it goes to purchase American goods that stay in the US.  Lets shamelessly steal an analogy from Don Beadreaux and Jack Wenders.  If Chinese companies buy American steel and lumber and ship it to China, it shows up in the trade balance.  If they buy the same products and build a factory in the US, it does not.  The Chinese use a lot of their dollars to invest in buildings, real estate, capital assets, factories, production facilities, etc. in the US.  And this is bad, how?  I know that since the Japanese investment boom of the eighties, there are lots of folks who call themselves "liberal" who suddenly got very upset about foreigners owning US-based assets.  It is impossible for me to see this concern as anything but xenophobia and racism, since hundreds of years of Dutch, Canadian, and British investment never worried a soul but Japanese and Chinese investment has everyone in a lather. 

By the way, if you worry about China as a security threat, wouldn't you rather see them invested in the US economy, and therefore have a strong interest in our continued prosperity?  One could easily wonder why Saudi Arabia does not use their power over oil reserves to screw with the US like they tried to do in the early 70's.  The reason is that all of their wealth is invested in dollar and euro-denomitated assets.   People worry about the power the Saudis may have to mess with our economy, but their reinvestment of dollars back in our economy has made this a game of mutual assured destruction.  The same thing is occuring with China.

The other thing the Chinese do with the money is invest in dollar-denominated financial assets, which in many ways is just an indirect way of investing in the same capital assets listed above.  They will invest dollars in equities and, yes, debt securities.  But the fact that the Chinese choose to spend their dollars on debt securities does not mean that the trade deficit is causing the debt.  If the Chinese had a predilection for debt securities, more so than say an American holder of dollars, one might argue that this predilection drives down interest rates a bit and therefore might increase total debt, but this is a fairly tenuous chain of causation and not, I think, what seems to be bothering folks who panic over the trade deficit.  In fact, one can argue that the causation runs more strongly the other direction, that the large US budget deficit keeps the dollar higher than it might otherwise be, increasing the trade deficit.

So when people lament that "we now consume much more than we produce", they are making a meaningless statement because the we in the first part are not the same as the we in the second part.  The US and the Chinese are sending equal amounts of money back and forth - its has to be, over the medium to long term, or exchange rates would crash.  All the trade deficit means is that there is a difference in WHERE Chinese and Americans consume the goods.  Americans consume Chinese goods in the US.  The Chinese consume some of the US goods it buys in China, and then consumes the rest in the US.  The trade deficit represents the net amount of American goods and services the Chinese buy in the US and choose not to haul back to China.  Instead, they take ownership of the American goods here, in the form of capital assets or financial securities that represent ownership or calls on the cash flow of these capital assets. 

Anyway, you can find more here at Cafe Hayek.

Postscript:  By the way, the US has run a trade deficit of a magnitude that panics people for over two decades.  If this is bad, surely we would be able to find the damage somewhere.  But the US over the last two decades has had the strongest economy in the world.  I suspect that a lot of people would answer "we have run up a huge debt".  But any increase in total debt in the US is not relevant to the trade deficit, or only tangentially related as discussed above.  The Federal debt is run up because the politicians are all spending whores who support their reelection with "good works" paid for with our money.  Consumer debt, which may or may not be "too high", is based on individual spending and saving choices, and is unaffected by whether a person buys an American or Chinese TV.

Welcome to the Carnival of the Capitalists and my second time hosting the COTC.  Note that several people tried to submit multiple posts - when that happened, I picked just one to include this week.

Many thanks to Silflay Hraka for starting the Carnival of the Vanities, of which this is a spin-off, to showcase smaller blogs to a wider readership.  Look for future Carnivals of the Capitalists at these sites (you can submit articles here):

December 26, 2005      Multiple Mentality   

January 2, 2006      Chocolate and Gold Coins   

January 9, 2006      The Social Customer Manifesto   

January 16, 2006      Wordlab   

January 23, 2006      Patent Baristas   

January 30, 2006      PHOSITA   

While you're here, feel free to look around -- this post will tell you more about what I do at Coyote Blog.

In what has now become a tradition of my hosting the COTC, and, in true capitalist fashion, I have taken on a sponsor for this week's Carnival:

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME Maker of fine anvils for over 50 years

Government Spending and Regulation

Here at Coyote Blog, I have been warning for years that government-funded health care is a Trojan horse for more regulation of your personal life.  I hate it when I am right.

Porkopolis,
a blog highlighting the insanities of pork barrel spending, offers an
out-of-the-box alternative to rebuilding New Orleans at government
expense.

BardsEyeView takes a look at the Federal Budget through the lens of Shakespeare.  Really.

Joshua Sharf at A View from a Height looks at government price and supply regulation of taxis, and wonders what's the point.

Taxes

Jeff Cornwall at the Entrepreneurial Mind gives us the happy news that 2006 will bring us more IRS audits and more people paying the AMT.

Property Rights

Multiple Mentality asks why a man in Atlanta was handcuffed and arrested for selling his own property.

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME Escalating crises since 1952

Blogging and the Internet

Kicking over My Traces observes that robot blogs are clogging up Technorati, and that Google blog search does a better job of weeding these out

Wayne Hurlbert of Blog Business World is, not surprisingly given his blog's name, bullish on professional blogging and business blogs.

Similarly, ProHipHop is bullish on the business of podcasting.

Barry Welford
brings us a fable to illustrate that InternetLand or cyberspace can be
as complex and confusing to executives as Wonderland was to Alice

The China Stock Blog has the 12 hottest search term keywords in China.   Not sure the Coyote is doing well on any of these...

Gaurav Agarwal's Blog
observes that while computers have penetrated the developed world,
mobile phones have been much more popular in the develop ping world.

Marketing and Growth

Elisa Camahort in Worker Bees Blog reinforces the idea, via two customer service tales, that a bad customer experience can last a lifetime.

Fire Someone Today goes after the difference between "small business owner" and "entrepreneur", and posits that every self-described small business owner who is not focused on growth is probably a hobbyist, a slave, or an impending failure

Jim Logan advises aiming customer communications at the customers, not at grammatical nitpickers.

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME The secret to Glenn Reynolds success

Business Opportunities

Jane's Fit by Five enjoys getting her first "press" credential and reviews the Fortune Innovation Forum

Anita Campbell at Small Business Trends is doing her annual trends series, and spoke by phone with noted futurist Watts Wacker who gave his forecast
of trends we can expect to see in 2006, along with a bit of advice
about how to interpret and use trends.

Starling David Hunter investigates the success of the $15 apple in Japan, and draws some broader conclusions about the nature of business opportunity.

Barry Ritholtz observes in the Big Picture that the film industry has been much savvier in responding to market and technology changes than has the music industry.

Personal Finance

My Money Blog deconstructs Ameriprise Financial and finds their hiring criteria and training seem to support his concerns about the company (Lots of interesting comments to the post as well with further information)

All Things Financial has a positive review of Lee Eisenburg's book "The Number", which discusses the dollar figure you need to have set aside to retire the way you want to retire.

Free Money Finance lists 10 questions you should be asking about your retirement

Why Homeschool discusses the importance of early economics training for your kids, and some approaches for teaching them outside of the classroom.

Searchlight Crusade responds to privacy concerns over real estate and mortgage forms, and explains why you have few alternatives to providing your information if you want to close the deal.

Jim at Blueprint for Financial Prosperity describes how he saved $200 on a car repair by ordering parts himself, but still letting the mechanic do the work.

David Porter advises you to make sure you understand your ARM in the light of recent interest rate increases.

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME Leader in dehydration technologies

Wall Street & Investing

Retired at 30 announces the brand-new Carnival of Investing, which seems like a pretty good idea given how many investing and personal finance posts the CotC is attracting.

George at Fat Pitch Financials discusses the phases associated with
publicly traded corporations going private to avoid Sarbanes-Oxley
regulations.

The Internet Stock Blog analyzes what impact the new Google music search function may have on other search and music sales-related stocks.

Mike Price discusses his value-investing strategy

The Japan Stock Blog brings news that the XBOX 360 is not selling well in Japan, for reasons that may be bad news for Microsoft.

Triple Pundit reports that institutional investors are beginning to press insurance companies over their risks/exposure to global warming.

Michael Cale of Financial Methods argues that based on current inflation and interest rates, investors should
allocate more assets to bonds and gold and fewer assets to equities.

Triple Witching Friday has camera-phone pictures of the floor melee that ensued from MIzuho's $335 million trading error, potentially one of the most expensive typos in history.

Patri Friedman of Catallarchy argues that index funds using the S&P 500 are not true index funds as the composition of the index is actively managed by humans

Having just exercised some employee stock options, Early Riser explores potential investments for his money.

Economic Forecasts

Financial Options has a summary of economic indicators for release next week, with commentary.

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME Never be without a date on Friday night

Economic & Business Theory

James Hamilton in Econbrowser takes another stab at bringing sanity to the gas price "gouging" meme.

The Prudent Investor discusses a seismic shift in power in global financial markets from west to east.  "When a conflict-torn dwarf nation like Serbia can sell debt maturing in
20 years with a coupon of 3.75% while the USA has to pay 4.50% for the
same maturity it is high time to throw the old dogmas of investing
overboard."

Sophistpundit looks at the effect of tradition on journalism and the evolution of successful media companies.

The Common Room draws from a book written in the 1870s where 'Aunt Sophronia' advices her nieces on economic principles.

Thinking about Peter Drucker leads David Foster of Photon Courier to some conclusions about what is wrong with today's business schools.

Health Care and Malpractice

Good News!  InsureBlog reports that it may be getting easier for cancer survivors to get life and health insurance.

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME California Dreamin' with Earthquake Pills

Business Practices

David Daniels in Business and Technology Reinvention argues that companies' use of forced stack ranking of employees is out of date.

Ed at Daily Dose of Optimism observes that when a Japanese business struggles, its execs often get a pay cut.  He wonders why this logical practice is much rarer in the US.

Jack Yoest writes that corporations don't seem to be showing their traditional hesitation at firing employees before Christmas.

Joe Kristan tells us a tax fraud story and draws the moral:  Don't cheat on your taxes and then piss off the CFO who is helping you do it.

200Motels engages the Three Stooges to explain why Enron is pushing up daisies.

The Coyote Within (hmmm, coyotes and business blogs) provides us a business fable about finding out your true character.

Humor and Other

Wordlab looks at politically correct alternatives to "Christmas"

Noah Kagan advises the occasional reversal of holiday gift-giving.

Gill Blog has a picture of the portable inflatable meeting room

Closing Notes

Thanks to the Original Illustrated Catalog of Acme Products for the advertising copy.  You can find more ACME promotional material here.

Thanks, its been fun.  Gotta go...

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME Escape from it all with the Smoke Screen Bomb

I am sure all us Typepad users enjoyed the downtime and temporary rollback on Friday.  I encourage you to check the permalinks for individual posts made in the last 5 days or so.  I found clicking on a number of them gave me errors.  I fixed this by going into the editing screen and opening each of these old posts and just hitting save.  This seems to republish the page and now there are no errors.

Because of your support, it looks like Coyote Blog captured the bronze in our weight class in the 2005 Weblog Awards.  Unfortunately, Typepad is celebrating in its own way by bringing the site down for over an hour 20 hours now.    Apparently the gerbil that powers the server fell off his treadmill, and they are trying to find a replacement.  No ETA for a fix so far, but if you are reading this I guess it is over.

Update:  Well, since I see this post, finally, I guess we are back up.  I have always been nothing but happy with Typepad so I will give them a pass this time.  But I had such good intentions of getting started on my Carnival of the Capitalists post early, and now I am back to doing it over the weekend.

Though I opposed starting the war in Iraq (via the Augean Stables argument here), I, unlike other anti-war folks who tend to horrify me, am happy the Iraqis seem to be making progress:

There may not be the same sense of history this time round, but the joy and determination of Iraqi voters emerging from dictatorship is still evident.   

Young and old, able-bodied and infirm, they streamed to polls for the third time in 11 months on Thursday, this time to elect a four-year parliament.   

While not as novel as the first post-Saddam Hussein election in January, participation was more widespread. Sunni Arabs, who boycotted the earlier poll for an interim assembly, flocked to vote this time, determined not to miss out on power again.

"I'm delighted to be voting for the first time," said 21-year-old driver Jamal Mahmoud in Ramadi, a Sunni Arab city west of Baghdad that has been at the front line of the anti-American insurgency for the past two years.

Hat tip: Best of the Web.

Note to readers:  This post is sticky through 12/15.  There are new posts just below this one!

Welcome!  This year we are in the blogs ranked 1000-1750, which to the un-initiated might seem like an also-ran category until you understand that last year we were in the "ranked 8751+" category, so this is a real step up!  Anyway, if you are a regular reader, you can vote once a day here.  For those new to the site, here is some of what I do here:

Real-life small business experiences:  Buying a company;  Working with the Department of Labor; Case Studies on the Minimum Wage;  What's on my Desk Today; Getting an SBA Loan

Economics:  The myth of Zero-sum Economics; 60 second refutation of socialism; Business Relocation and the Prisoners Dilemma; Technocrats, government and disasters; Roosevelt's NRA: America's Flirtation with Fascism; Gasoline Supply and Demand; Hoping for Price Gouging; Peak Oil; In Praise of Robber Barons

Libertarian political commentary:  Respecting individual decision-making, The real implications of a Privacy Right, Technocrats get their comeuppance, A defense of Open Immigration, New Alien and Sedition laws, Opposing Special Rights for the Press, Iraq war, The Kelo decision, Free speech, Danger of Politics without Philosophy  

Frustration with runaway torts:  Jackpot Litigation; Coyote vs. ACME

Camping (my business):  New American nomads;  This RV is just wrong

Attempts at humor: How to spot a dictatorship; Coyote's Law;  Making fun of the UN and the Internet;

Sports: The Baseball Closer Role is Nuts

ACME Products:  Instant Girl; Ultimatum Gun; Earthquake Pills

How I Married Well:  My Wife, the Fashion Diva;  My Wife's Fashion Awards (and here)

Enjoy.

There are several things I want to write on, but I am hosting the Carnival of the Capitalists on Monday and so am a bit stretched keeping up with those submissions.  If you would like to submit a post to the Carnival, you can do so here (though why I volunteered for the Capitalists instead of the Carnival of the Sexy Lingerie is a mystery to me).

And, by the way, thanks for your support of Coyote Blog in the 2005 Weblog Awards.

The NY Times has a fairly scary (though not particularly surprising) article about unfunded retirement obligations of government bodies.

Thousands of government bodies, including states, cities, towns, school
districts and water authorities, are in for the same kind of shock in the next
year or so. For years, governments have been promising generous medical benefits
to millions of schoolteachers, firefighters and other employees when they
retire, yet experts say that virtually none of these governments have kept track
of the mounting price tag. The usual practice is to budget for health care a
year at a time, and to leave the rest for the future.

Off the government balance sheets - out of sight and out of mind - those
obligations have been ballooning as health care costs have spiraled and as the
baby-boom generation has approached retirement. And now the accounting rulemaker
for the public sector, the Governmental Accounting Standards Board, says it is
time for every government to do what Duluth has done: to come to grips with the
total value of its promises, and to report it to their taxpayers and
bondholders.

Its not too surprising to most of us that the government, which is actively putting Enron managers in jail for hiding liabilities off-balance-sheet, turns out to be a far worse offender at the same practice.  The few agencies that have performed the actuarial calculation are coming up with staggering numbers:

Stephen T. McElhaney, an actuary and principal at Mercer Human Resources, a
benefits consulting firm that advises states and local governments, estimated
that the national total could be $1 trillion. "This is a huge liability," said
Jan Lazar, an independent benefits consultant in Lansing, Mich. "If anybody
understands it, they'll freak out."...

Maryland, for example, now spends about $311 million annually on retiree health
premiums. But when that state calculated the value of the retirement benefits it
has promised to current employees, the total was $20.4 billion. And the yearly
cost will jump to $1.9 billion under the new rule, according to an analysis for
the state by actuaries at Aon
Consulting, which advises companies on benefits.

I usually severely discount consultant scare numbers like "$1 trillion", particularly after the year 2000 bug orgy of doomsaying, but if Maryland, an average size state, is facing $20 billion, then a trillion may only account for state governments.  The number may well be higher when you include cities, counties, school districts, etc. 

While this is clearly bad news, there is also a silver lining.  Politicians for years have given away richer and richer public employee retirement benefits because they appeared "free"  (free to a politician being anything that doesn't have to be paid for when he/she is in office).  By changing accounting standards to force acknowledgment of this liability, politicos will at least have to address true costs of any future giveaways.

As a minimum, most public authorities are looking to change benefits for new employees, which is an entirely reasonable response that should have been taken years ago.  Just as past changes in public accounting for pensions caused agencies to shift benefits to 401K's from defined benefit pensions, so this rule-changes in retiree medical care will certainly change benefits packages.

However, that being said, I have a much bigger problem with several state's proposals to retroactively reduce benefits for existing retirees and employees.  These retirement benefits are a contract, and should not be allowed to be changed casually, any more than could an agency just choose to renege on a municipal bond payment.  Sure, the commitments may have been irresponsible, but that does not make them automatically void.  Private companies from time to time get themselves in a similar mess, and the only way for them to relieve themselves of some of this liability is through the bankruptcy process.  Public agencies should be forced to do the same.  They should not be able to use their coercive legislative power to just make these obligations disappear at the stroke of a pen -- they need to go through the pain of a bankruptcy, where all creditors, not just pensioners selectively, will need to share in the haircut.

I run a recreation business that tends to be seasonal.  Many of the campgrounds we run are at high altitudes, and are closed most of the winter because they are snowed in.  We tend to open them in the spring and close them in fall, meaning we hire people in April or May and their job ends in September or October.  Everyone we hire knows from the time they get their job offer that the job is just seasonal, and they will not have a job past some date.

This arrangement is fine with most of my workers, since they tend to be semi-retired already and work during the summer and take winter off. 

The only state where we have a problem is California.  In California, we have an incredibly large number of employees who register for and get unemployment benefits over the winter, even when they have no intention of working.  Most states require that unemployment seekers be actively looking for work.  I don't know if California checks less or if California employees are more adept at gaming the system, but the state unemployment system there seems to be paying for a lot of my employees' vacations.  I know of several who are getting unemployment and are not even in the country - they are down in Mexico fishing all winter.

As a result, I am in the worst California unemployment category, cleverly labeled "F+".  In New Mexico I pay .03%, in Florida I pay 1.3%.  In California, I pay a whopping 6.2% of wages into the system.  Which leads me to another thought - even if no one was cheating the system, why should I be punished with the worst rating in the state?  The nature of my business is that I can only offer jobs April to September.  The only alternative is not full-time work, but no job at all.  The unemployment system was created for the GM guy who has worked the line for years and gets laid off when the economy goes bad.  But my employees know from the moment I offer the job that they are not going to have a job in November.  Unlike the guy at GM, they get exactly what was promised to them.  If this was unacceptable, if they needed full time work, they should have sought out another job.  Why am I punished with higher taxes because I only have seasonal work to give?  Why, when I only have seasonal work, do I have to fund full-time income?

Give credit where it is due, California has done a pretty good job over the last couple of years cleaning up its workers comp. system.  I would like to see them do something similar with unemployment.

Thanks for all the votes to date in the 2005 Weblog Awards.  We are hanging in there at third, which would be a cool place to finish.  Don't hesitate to vote for us every 24 hours at this link.  And you can then vote from your kids' computer.  And when you are in the public library you can vote from that computer.  And there is nothing wrong with wandering down the row of empty cubicles at work during lunch and voting form all those computers....

On several occasions, I have warned that government funded health care is becoming a Trojan horse for increasing government micro-management of your life.  The logic is that by paying for your health care, the government can argue it has a financial interest in your not eating fatty foods, not smoking, wearing a bike helmet, exercising, etc, decisions that would otherwise only affect the individual themself.*

For those who often accuse me of exaggerated paranoia when it comes to government intervention, check out this from the UK:

People who are grossly overweight, who smoke heavily
or drink excessively could be denied surgery or drugs following a
decision by a Government agency yesterday.  The National Institute for Health and Clinical Excellence (Nice) which
advises on the clinical and cost effectiveness of treatments for the
NHS, said that in some cases the "self-inflicted" nature of an illness
should be taken into account.

Sorry, but I told you so.  What's next?  Is an unwanted pregnancy "self-inflicted"?  How about an STD from unprotected sex?  The rulers of this process in England might argue that "Oh, we would never include those things" but technocrats in the US have seen parallel things happen as they have lost political control of their similar institutions in the US.

It gets me to wondering whether the Solomon Amendment may be the new template for government control of individual lives.  In both Universities and state governments, the Feds use the threat of withdrawal of federal funds to coerce actions (think 55 mile speed limit, title IX, military recruiting on campus) that the Constitution nominally does not see to give them authority over.  Now, there is the distinct possibility that federal funds to individuals (Social Security, Medicare, unemployment) could be used to increase federal authority and coercive micro-management at the individual level.

*Update: Yes, I do know that "themself" is probably not correct grammar.  I sometimes use they, them, themself as a grammatically frowned-upon but I think less awkward substitute for he/she, his/her, and his-or-herself when trying to be gender-neutral.  Sometimes I just use the traditional male pronoun, sometimes I use the female pronoun generically since women will complain about "he" used generically but men will not complain about "she", and sometimes I mix them up.  There is still some consensus building to do in coming up with gender neutral pronouns, though this person defends the singular "they".

Per the BBC News:

More than 5% of the net's most popular domains have been registered using "patently false" data, research shows.

A US congressional report into who owns .com, .net and .org domains found that many owners were hiding their true identity.

Congress has just discovered that people, knock me over with a feather, do not always include all their correct personal private  and personal confidential information in online web databases that can be read by everyone:

The report found that owner data for 5.14% of the
domains it looked at was clearly fake as it used phone numbers such as
(999) 999-9999; listed nonsense addresses such as "asdasdasd" or used
invalid zip codes such as "XXXXX".

In a further 3.65% of domain owner records data was missing or incomplete in one or more fields.

I personally am a fan of (555) 555-5555 in filling out web forms.  For years, I never, ever put my correct phone number in the WHOIS registry, and only correctly filled in enough blanks to get my credit card authorized.

As is usual with every privacy reduction effort, it starts with an honest desire for better law enforcement:

Increasingly whois data is being used by law enforcement
and security companies to find out who is running a website involved in
spamming or some other scam....

The GAO recommended that more effort be made to verify
the information by domain owners and that greater use be made of
commercial software tools to check who runs a website.

                   

I get the law enforcement issue, but I think it is dwarfed by the privacy and free speech issues.  There are a lot of really good non-illegal reasons not to want the detailed personal and private information of web site owners plastered all over public data bases, and there are particularly good reasons that web site owners might not like the government to know who they are.  Like every blogger in China, for example.  I don't think that US Government bodies (or major corporations, or political groups, or fringe groups like the KKK) are above seeking some type of retribution (e.g. audits) against folks online who criticize them, and I am sure China and Saudi Arabia are not above it.  If you start a web site criticizing your current employer, do you really want to reveal your name?  I for one thought for a long time about whether to blog as myself or anonymously.

As for hunting down phishing and other such scams, liscencing web owners in a way similar to say gun owners is not necesary.  Scams are illegal because somewhat is defrauded of money, and that money leaves an easier trail to follow than any electronic trail, even with better ICAHN data.  You can use zombie computers and other techniques to defeat most electronic tracing, but the money WILL end up in the bad guys hands and can be found.

Next up:  Requiring background checks before you can register for a web site.

Again, via Reason's Hit and Run:

Yesterday an Institute of Medicine committee released a report on food marketing and children that called for
congressional action "if voluntary efforts by industry fail to successfully shift
the emphasis of television advertising during children's programming away from
high-calorie, low-nutrient products to healthier fare." According to The New York Times, the IOM report "links TV ads and
childhood obesity." According to The Washington Post, it says "TV ads entice kids to
overeat."

It is amazing that the human race has made it this far given that our children are raised by two entities, "TV" and "Congress", who are so often bickering with each other over how to best accomplish the task. 

I have a proposal.  I think we should nominate some smaller group of adults, maybe two on average, to take over the care, feeding, and education of children until they reach adulthood.  Though its probably not an absolute requirement, maybe we could have one of these adults be a female and one a male, to make sure children can draw on the experience and insights of both genders.  These individual child protective guardians could actually live with the children, helping them to avoid making bad decisions about diet, entertainment, and many other life issues.  This would drive accountability for raising children down much closer to the individual level, and relieve from "TV" and "Congress" the need to micromanage decision-making from afar.

Per Reason's Hit and Run:

House Judiciary Committee Chairman F. James Sensenbrenner (R-Wis.), who never
saw a criminal penalty that couldn't be improved by making it harsher, has introduced a bill that would impose a three-year mandatory minimum sentence
on anyone who, with an expectation of financial gain, "assists, encourages,
directs, or induces" two or more foreigners to illegally reside in the U.S. The
penalty rises to five years if the encouragement leads to a crime punishable by
more than a year in prison. Families Against Mandatory Minimums notes that "the five-year mandatory minimum will nearly always
apply because the bill would also increase the maximum penalty for illegal entry
to a year and a day and provides mandatory minimum penalties of one to 10 years
for those who reenter the country following deportation." Sensenbrenner's
committee is scheduled to vote on the bill today, without any hearings.

So if I accept paid advertising on my blog, and then I publish this, am I a felon?

The FCC has reversed course and decided that cable companies bundling channels into packages rather than selling them a la carte is bad and requires coercive action from the government to fix.  This issue was originally pushed by religious groups, who I guess did not want signals from naughty content even accessible from their house (the "just don't watch that channel" solution presumably determined to be too difficult).  However, "progressives" on the left have latched onto this issue as well.  I remember a Kevin Drum post, which unfortunately I can find right now, advocating cable unbundling as an example of an agenda progressives should be jumping on.  Beyond the basic rationale that progressives hate cable companies almost as much as Exxon and Wal-mart so anything cable companies oppose they are for, the ostensible logic is that if I pay $50 now for 165 channels, I should only pay $10 if I choose to watch only 33 of those.  Here is their "logic":

The main obstacle for a la carte: programming contracts.
Programmers routinely bar cable operators from selling channels a la carte.

Why? Advertising rates. Cable programmers base ad rates on
the number of viewers they reach. The more they reach, the more they can charge.
If they allowed a la carte, viewership for many channels would likely
plummet.

Gene Kimmelman of Consumers Union says:"This is the essence
of how they squeeze extra revenues out of consumers."

The problem could worsen, he warns, as cable operators "” as
well as broadcasters and satellite TV "” pack on more channels.

"The bundles get bigger, and prices go up," Kimmelman says.
"A la carte would blow this scam out of the water."

This presumes that the number of channels has anything to do with cable cost or pricing.  Which it really doesn't, since the marginal 100 channels or so at the tail end of the viewership curve all just want to be carried for free, in hopes they can get some ad revenue from corporate America for being on the dial.   From a cost standpoint, beyond a few core channels, it costs cable companies about nothing extra, given the infrastructure of high-bandwidth delivery systems is already in place, to send you 20 channels or 150. 

Pricing, though, is not just set based on costs, but on value.  And the government is about to change the value equation, and maybe not in the consumer's failure.  Up to now, cable's value proposition has been "wide selection", a value proposition supported by the multi-channel bundle for one price.  After making this traditional value proposition illegal, there is no guarantee at all that the value proposition that replaces it will be a better, or even equivalent one.

Most consumer advocates tend to assume that bundles are hosing the customer, because they are being forced to pay for stuff they don't want.  But bundles can more often than not be the opposite - including items of value that the customer is not paying full price for.  The the evolution of cable service tends to confirm this.  Cable on a real basis does not cost that much more than it did 20 years ago when you only got 20 or so channels.  My suspicion, which I can't prove, is that you are paying for those 20-25 core channels, and everything else is a freebie.  In this model, bundling is delivering extra value over a la carte, because you really aren't paying much or anything at all for those incremental 130 channels.

In fact, in my years as a consultant looking at pricing, one of the first things we looked at in a company to increase total pricing and profits was unbundling services.  The issue of concern was that more often than not, bundling provided customers with hidden pools of value that they were not really paying for, and unbundling helped make consumers pay full price for things they were previously getting for free.  Airlines, banks, and numerous others make more money by unbundling today.  My suspicion is that this will be the case with cable.

By the way, look under the hood of any business regulation proposed as "consumer protection" and you will usually find the fingerprints of corporations trying to use the government to sit on their competition.  And yes, we have that here.  New entrants AT&T and Verizon want the government to ban the current cable companies' business model, thereby putting them on equal footing in entering the market.  By the way, speaking of these phone companies, does anyone out there really think they are getting a better deal when they pay for call waiting and answering service and long distance and local separately rather than in one of the advertised bundles?

So here are my predictions:

• Assume an average cable bill today is $50 a month for 150 channels.  If the average person watches and really is willing to pay for 15 of those a la carte, then the new pricing is going to result in a $50 bill for those 15 channels.  Count on it.  People will be paying the same amount as before, but for fewer channels.  Or, if they want the same number of channels as before, they will be paying more
• In one year, leftish backers of the bill will realize the above, and will publicly criticize the cable companies for their rational reaction to the coercive government program.  They will propose new pricing regulations to "fix" the problem they say stems from private enterprise, but in fact came from unintended consequences of the original regulation.  This use of negative consequences of regulation to justify further regulation is one of the most important tools in the statist's bag.
• A number of smaller cable channels will go bust.  Even those wanting and willing to pay a la carte for the full 150 channels they got before will not be able to, because many will not exist any more.
• Fewer niche or idiosyncratic channels will exist.  Today, cable companies want to sell the package of 150 channels.  At the margin, adding a channel that caters to a niche not reached by the other channels is better for them than adding yet another channel that caters to the median viewer, because it makes the package as a whole attractive to more viewers.  However, if every channel is sold a la carte, cable programmers will add channels and content aimed at the mass market to maximize sales of each channel.  Each channel must stand on its own. Oddball niches need not apply.  Interestingly, many of these will be things like the Gay Vegan Channel
  that tend to be particularly popular among "progressives".
• Innovation in terms of new cable channel offerings will die, because a la carte pricing will substantially increase the cost for a new entrant to get going.  In the past, they just had to sell 2-3 cable company programming buyers that they should try the new channel in their lineup, and they were off and running.  Now, they not only have to convince cable companies to be on the menu, but have to sell consumers one by one to get into homes.  This is orders of magnitude more expensive.  The stock of current cable companies will go up, because competition will be harder.  In another ironic unintended consequence for "progressives", only large corporations will be able to start new cable channels in the future, increasing media consolidation that progressives decry.
• In one year, religious backers of the bill will be upset that so many people still opt for naughty content, and will propose legislation to increase the difficulty in signing up for certain channels (e.g. physical presentation of proof of age) and to regulate advertisement and promotion of these channels.

Reason's Hit and Run has more along the same lines.

Postscript:  In the past, FCC and Congressional rules have actually mandated bundling.  For example, still on the books are must-carry laws that say that cable companies have to carry every local broadcast channel.  It will be interesting to see if I can opt out of ABC.  I bet I won't be able to - legislation pre-empts FCC rule-making.  Which will create an interesting discriminatory aspect to the regulation, which is that the cable companies must bundle in companies that also broadcast their content over airwaves but must unbundle non-broadcast content.  Which also leads to the irony that cable will have to include content that consumers have an alternative source for (e.g. ABC via an antenna) but have to be ready to exclude content that consumers have no alternative source for (e.g. the History Channel).

Final Thought: What's next from the FCC?  If I only listen to FM 93.3 on my radio, are radio makers going to be required to unbundle the capability to receive all those other stations to give me a radio that only gets 93.3?  And does anyone think that radio would be cheaper?

I wanted to stream digital music from my main computer in my home office to my main stereo system in the den.  After some research, I chose version 3 of Squeezebox from Slim Devices.  They have taken an open architecture approach that I like, and have a proven history of steadily improving their product.  Most true audiophiles I sought advice from use this device (this is an audio-only device, no video or jpegs streamed).  I am currently converting my entire CD collection to lossless FLAC format audio files using EAC, which seems to be the audiophile favorite for ripping (and it is free).  FLAC compression seems to result in albums 250-450 meg, meaning my 400 CD's will need about 140 gig, which I have available.  I will ditch most of my mp3 files, saving only a subset for iPod rotation.  New mpg files, or whatever rules in the future, can be made directly from the FLAC.

The box itself is small and well-designed.  Setup was a breeze, once I fixed a setting on my firewall.  Now I can point my remote at this box and scroll easily through my music collection (along with a number of Internet radio stations).  No flipping through CD's or yelling at the kids for not alphabetizing them right.  You can browse or search by title, artist, or album.

In addition to controlling it with a remote, I can control it with any computer on the network.  Right now, I choose songs on a laptop in the kitchen, which sends music from the computer in the office to the amp and speakers in the den.  Awesome.  Their web site says that you can also browse your music and choose what's playing from a web enabled PDA, but I have not tried it yet.

Here is the blogger vanity part:  In addition to an array of other screensavers, you can have the device connect to any online RSS feed and scroll the contents marquee-style across the screen.  All day I have had my blog feed scrolling across the device, interspersed with NY Times and ESPN headlines.

Frequent readers of this blog know that I have a particular disdain for technocrats and the damage they do via government coercion.  Just to make sure that I am not subject to the Princess Bride accusation of "You keep using that word -- I do not think it means what you think it does", I will define my terms.

In my parlance, a technocrat is someone who believes that individuals, either acting alone or in groups, are making the wrong decisions and that a few very smart people can make things better for everyone by overriding everyone else's decision-making. 

Technocrats sometimes have a "macro" flavor, focusing on the broad sweep of the economy, seeing market failures everywhere that they feel they could override if only someone would follow their "plan".  This hubris was of course one of the foundations for that juggernaut Soviet Russian economy, and was in fact the thinking behind America's closest brush with fascism, Roosevelt's NRA, which was modeled on Mussolini's economic work.  My college roommate Brink Lindsey has a lot of background on the early 20th century roots of technocratic opposition to capitalism in his book Against the Dead Hand: The Uncertain Struggle for Global Capitalism.

Technocrats also can have a "micro" flavor, focusing on individuals who they feel are making bad decisions for their own selves.  Classic examples are helmet and seat belt laws, where "smarter" people use government coercion for your own good.  We typically call these micro technocrats nannies.  I discussed governments overriding individual decision-making here.

Just the other day I mentioned in this post that I had had a conversation with a technocrat who was:

lamenting that allowing a company like GM to die is dumb, and that a
little bit of intelligent management would save all those GM jobs and
assets.  Though we did not discuss specifics, I presume in his model
the government would have some role in this new intelligent design (I
guess like it had in Amtrak?)

I went on to describe why it was OK to let GM fail.  In particular I noted that it was bad for everyone to artificially force quality assets (people and facilities) to remain in an under-performing corporate structure, which is what the government in effect does when it tries to override the market's decision that a corporation needs to die.

I bring this all up because I saw this classic example of technocratic statism from David Ignatius in the Washington Post. 

Economist Philip Verleger was traveling in Asia last month when the news
broke that General Motors was slashing 30,000 jobs to try to reverse its death
spiral. A Japanese economist he had known for many years asked him a stark
question: "What great nation will allow its major manufacturing company to
fail?"

The convulsions wracking GM are scary, but they're getting surprisingly
little attention amid America's sea of other troubles. Certainly, we've heard
barely a peep out of the Bush administration, which evidently worries more about
keeping energy companies happy than Rust Belt manufacturers. Commentators have
blamed GM management for being too shortsighted and its workers for being too
greedy. But few people seem to appreciate that the nation as a whole has a stake
in maintaining a dynamic industrial base, or that government policies could help
reverse our industrial decline....

But suppose we took GM's near-death experience as a national wake-up call and
decided to get serious about reviving the long-term health of the U.S.
manufacturing sector. What if political leaders treated this as a fundamental
national mission, equivalent to President John F. Kennedy's call to put a man on
the moon? Could government make any difference?

Try this thought exercise: Suppose a government plan could revitalize the
automobile industry and the rest of the transportation sector, encouraging it to
leapfrog several generations of technology; suppose this same plan could cut
U.S. dependence on foreign oil to zero; and suppose, finally, that the plan
could develop new technologies that would bump our economy to a higher growth
path and foster U.S. economic leadership in the 21st century. Would that idea be
worth exploring?

Yes, good idea, lets hand over the automobile industry to the same folks who built and maintained the levees in New Orleans.  It is interesting he quotes a Japanese economist chiding the US for letting its major companies fail.  The author is basically advocating the Japanese MITI approach, making technology choices and managing industries and preventing large organizations in which national pride is somehow tied up from failing.  Which, of course, has resulted in a 15 year recession in Japan.  And Europe.  Don Boudreaux at Cafe Hayek responds further:

I'm tempted to do a long riff here on all the details that Ignatius misses "“
such as, for example, the fact that it's simply not true that as goes GM so goes
America; such as the fact that there is
nothing at all special or inherently better about manufacturing and
manufacturing jobs over service-sector production; such as the fact that
infecting decisions about investment and production with politics will reward
political appeal at the expense of genuinely economically sound uses of
resources.

But it's late, so I'll just point you to Ignatius's closing paragraph:

I'm no technologist, so I can't evaluate the technical details of Lovins's
proposal. What I like is that it's big, bold and visionary. It would shake an
America that is sitting on its duff as foreign competitors clobber our
industrial giants, and it would send a new message: Get moving, start
innovating, turn this ship around before it really hits the
rocks.

This paragraph reflects an attitude that is rich soil for totalitarianism to
take root. It ignores individual freedom; it ignores the possibility that the
admired Big Plan might be flawed, either technologically or economically or
both. Ignatius is all orgasmic simply because The Plan is centralized and Big
and (allegedly) will compel or inspire the masses once again to behave in ways
that promote national greatness.

Heaven help us.

If you think he is exaggerating, as many people do, by invoking the threat of fascism, go back and read what the fascists of the 1930's were writing.  It is nearly identical to Ignatius's words.

There are two lessons technocrats never learn:  1) Their grand plans never work and 2) The statist machinery they create via their grand plans is always taken over from the well-meaning by the power-hungry and corrupt.  As I stated before:

Technocratic idealists ALWAYS lose control of the game.  It may feel
good at first when the trains start running on time, but the
technocrats are soon swept away by the thugs, and the patina of
idealism is swept away, and only fascism is left.  Interestingly, the
technocrats always cry "our only mistake was letting those other guys
take control".  No, the mistake was accepting the right to use force on
another man.  Everything after that was inevitable

And, in fact, you are seeing just this today, as technocrats on the left lament that the machinery of state control they created, from the FDA to public schools, is being taken over by their political enemies.  Unfortunately, they lament the loss of control, not creating the all-powerful state in the first place.  Much more on this topic here and here.

Postscript:  I tossed off the statement above about letting the same organization that built the New Orleans levees fix the automobile industry.  That quick joke makes a valid point, but I should mention that Ignatious does try to preempt this argument:

But then, who can expect individuals to act responsibly when we have an
administration that asserts, in apparent sincerity, that the proper response to
our massive deficits is more tax cuts that plunge us even deeper into debt?
We've become so inured to public-sector mismanagement that the idea of
government solving problems is almost laughable.

In effect, he is arguing that yes, the government has mismanaged things, but this is only because they did not let the really smart people run things.  This is a particularly seductive argument for the left, where most technocrats reside, since it lets them say that government is inefficient only because that idiot Bush is in charge. 

But this ignores the fact that the stupid and corrupt always take over the machinery of state.  Technocrats love railroads, and think America is stupid for not riding the train, like those brilliant Europeans are.  Many supposedly smart people, both Democrats and Republicans, have had their shot at Amtrak, and it still sucks and loses money.  One reason among many for this failure is that incentives matter.  The government has the incentive to patronize powerful voting blocks, not to run an efficient operation or serve customers well.  That's why we get half-billion dollar bridges in Alaska to islands with populations of fifty people.  That's why scientific decisions at the FDA get politicized.  That is why have the government backing a technology ostensibly to reduce fossil fuel use (ethanol) that has been proven to actually increase fossil fuel use.  In effect, government always turns smart people stupid.  More on the specific dangers of government industry building here.

Another Postscript: By the way, people smarter than me do change industries all the time.  The are called "entrepeneurs" and they raise capital from people voluntarily and they succeed or fail only if individuals choose to do business with them.  I find it fascinating to compare Sam Walton with Mr. Ignatius.  Sam Walton raised money voluntarily to support a different vision of retailing, and was successful because many, many people have chosen voluntarily to shop at his stores.  Mr. Ignatius wants to change the automobile industry at the point of a gun, using government's coercive power to force companies to adopt certain technologies and build cars in certain ways, funding the effort with tax dollars taken unwillingly from productive Americans.  Isn't it amazing that "progressives" will want to rally around Mr. Ignatius's vision while excoriating Wal-mart at every turn? 

OK, another Postscript:  At the heart of many of Mr. Ignatius's concerns, and of many people on the left, is that America is "losing" to other countries.  Could someone on the planet please provide maybe just one single fact to support what they mean by this.  I mean, I hear this all the time, but what is it referring to?  Other than, of course, the lamentable fact that 43-year-old Ivy League educated men still can't stop ending sentences with a preposition.

Since 1990, the US economic growth rate has dusted that in most of Europe and Japan.  Only developing nations like China have growth rates that outpace us, and I guess that is what these folks are worried about.  But this is what is never said:  If you don't want countries like China to "catch up" with the US in technology and economy, then you have to be willing to consign billions of people to eternal poverty.  It is amazing to me that "progressives"  who ostensibly care about the poor get so upset when countries like China develop real capabilities that can finally pull themselves out of poverty.  Inevitably, as they do this, they will do some things better than we do.  Over time, our economies will shift, as we do the things we are good at and vice versa.  I know this is kind of novel for some - its an idea that has only been around for 200 years or so.  Having other people get wealthier is only a threat if you believe economics are zero-sum, another urban legend popular on the left that can be demolished with about 5 seconds thought.

One of the virtues of being a bit older is that you can start personally observing history repeating itself.  In the late 80's and early 90's everyone was running around screaming that we were "losing" to Japan and we had to imitate their statist technocratic approach.  Fortunately we did not.  Only in politics could you hear people like Mr. Ignatius being taken seriously when they scream "our economy is losing - lets go out and imitate the people losing even worse"

Update: Sorry this is getting so long, but I can't ignore Virginia Postrel on the same topic of technocrats:

Competition provides not only useful criticism but a continuous
source of experiments. It gives people...the ideas with which to create still
more progress and encourages them, too, to come up with incremental
improvements. By picking winners, stasist protectionism eliminates this learning
process, which includes learning what does not work.

"Premature choice," warns the physicist Freeman Dyson, "means betting all
your money on one horse before you have found out whether she is lame."
Protecting established interests from new challengers is one form of premature
choice. But technocratic planners also sometimes kill existing alternatives to
force their new ideas to "succeed." To protect the space shuttle, NASA not only
blocked competition from private space launch companies, it also eliminated its
own expendable launchers. Such pre-emptive verdicts often mark public works
projects. Planners pick an all-purpose winner, squeeze out alternatives, and
eliminate any real chance of experiment and learning.

Consider the infamous Denver International Airport. Aviation officials touted
the $4.9 billion project as essential to keep up with the region's growth. They
promised it would be a vast improvement over the old Stapleton Airport, which
was often socked in by bad weather. But its sponsors foisted DIA on unwilling
customers. The airport is 25 miles outside Denver, pretty much in the middle of
nowhere, while Stapleton was just 15 minutes from downtown. To make matters
worse, there are no hotels near DIA. And the new airport's cost per passenger is
somewhere between $11.75 and $18.14, depending on how you count--substantially
more than either the $4.59 at Stapleton or the $9.91 promised by former Mayor
Federico Pena. Frequent travelers resent the inconvenience and the generally
higher ticket prices. "I liked Stapleton better," one told The Denver Post. "You
could literally leave about 45 minutes before your plane departed. With DIA, you
have to leave an hour and a half before." A flight attendant expressed a common
sentiment: "It's a beautiful airport. But we hate it."

On the airport's first anniversary, journalists had trouble reaching a simple
verdict on DIA. There were complaints all right--lots of them. But some
passengers liked the spiffy new airport, with its marble floors and inviting
shops. And flight delays had in fact dropped dramatically. The first-anniversary
stories were confused, lacking a central theme.

The reporters had missed the main problem: The city had eliminated the most
obvious source of feedback--competition from the old airport. It had made DIA a
protected monopoly rather than an experiment subject to competitive trial. By
shutting down Stapleton, DIA's political sponsors had made it impossible to rule
the new airport a definite error. No matter how many complaints passengers
lodge, officials can always point to other advantages. At the same time,
however, DIA's monopoly keeps it from becoming an accepted success. Without a
genuine trial, we simply have no way to tell whether travelers (or airlines)
would rather trade a convenient location for fewer weather-related delays. One
airport must fit all: Love it or hate it, if you're flying from Denver you don't
have a choice.

Technocrats often decry competition as wasteful, and always use examples of failed companies and poor private technology choices (e.g. dot com bust companies) as an example of inefficiency of a competitive marketplace that technocrats could avoid.  As Postrel points out, though, these individual failures are not failures of the system, but rather are triumphs.  In the immortal words of the Microsoft tech center, they are a feature, not a bug, and a critical feature at that.

Some days, I just don't have the energy to issue yet another rebuttal of serial economic ignorance.  But the folks at Cafe Hayek never seem to get tired.  You can find thoughtful rebuttals to accusations that Oil prices are too high, Wal-Mart prices are too low, and the minimum wage needs to be raised.

Its been linked around quite a bit, but if you haven't seen it, Scott Adams, creator of "Dilbert", has a blog.  Most of the posts are humorous, but in this post he provides a framework for thinking about humor:

The core of humor is what I call the 2-of-6 rule. In order for something to be
funny, you need at least two of the following elements: 

Cute
(as in kids and animals)

Naughty

Bizarre

Clever

Recognizable
(You've been there)

Cruel

 

I
invented this rule, but you can check for yourself that whenever something is
funny it follows the rule. And when something isn't, it doesn't. One
of the reasons comics are such a popular form of humor is that they often get
the cute part automatically. Calvin and Hobbes is widely considered the best comic ever, but the few times it featured the parents doing the main action, it
fell flat. Whenever it combined Calvin and Hobbes (both exceedingly cute), with
some witty dialog (clever), a dangerous wagon ride (cruel), Calvin acting like a
typical kid (recognizable), and thinking about adult philosophy (bizarre) it
fired on 5-of-6 humor elements, which is virtually unheard of.

I spent WAY too much time in business school and as a consultant deconstructing businesses and industries into processes and frameworks.  It is interesting to see something we geeks think of as unstructured and creative (e.g. humor) deconstructed scientifically as well. 

Well, I am nursing some jet-lag but am working on a post for later this week on the alleged CIA secret overseas prisons.  This is one of those issues where my pragmatic frequent-flying persona is all over Jenifer Garner violating the crap out of terrorist civil rights to protect me, but my intellectual-libertarian persona knows better.  If you want a preview of where I am going with this, you can see this post on immigration, noting the argument that our individual rights pre-date, rather than flow from, the government, and therefore citizenship shouldn't matter in assessing what rights a person has vis-a-vis Uncle Sam.

I had the opportunity to look at some land while I was in Hawaii, thinking about maybe having a retirement home in the future, at least to escape the Phoenix summers.  My wife and I would like to be on a coast.  I don't like the Northeast, and neither of us like the Gulf coast or Northwest coast.  That leaves SoCal and Hawaii (if you limit it to the US).  What worries us is that though we expect some appreciation in our real earnings over the next decade, we fear that waterfront property in these areas may appreciate even faster, leading us to the conclusion that we may be able to afford a nicer piece of land now than when we retire.  We worry about bubble pricing but being willing to hold an asset for 20-30 years alleviates some of that problem.  The Big Island seems to be a better value than the other islands, but even there, its freaking expensive.  Sigh.  Maybe if it was a big enough lake, that would do?

I am on the Big Island of Hawaii today doing some business (yes, I know, lets hear all those violins).  I encountered a program here called Hawaiian Home Lands.  Apparently the state makes long-term leases of land for homes available at $1 a year to native Hawaiians.  Recipients of this largess may either get a lot with an existing home, or just an undeveloped lot they can build on (using special subsidized loans and with a number of special exemptions from building and development codes).  People may pass on the lease and the improvements they have built to their kids as long as their kids qualify for the program as well.

On its face, this appears to be one of those well-meaning government programs designed to deal with a problem that many resort destinations face, that locals who work in the resort communities often get priced out of the market for homes in the area where they work (Vail is the classic example of this problem).  Unfortunately, as with many government programs, this program has some perverse results.

Qualifying for the program requires that the recipient pass a strict racial test, which the HHL web site says is "50% or greater native Hawaiian blood".  Setting eligibility for a government program based on racial tests is pretty outlandish in and of itself, but it gets worse.  People taking advantage of the program need to think carefully about the race of their mate before they decide how much to invest in their home.  A 75% Hawaiian who marries a full-blooded Hawaiian will be able to pass the improvements on to their children (since the children will be more than 50% Hawaiian), and thus can justify a large home investment.  The same person who marries a full-blooded Japanese or African or Anglo-Saxon will not be able to pass their home on to their kids, since their kids will fail the race test.  So, not only is there a race-test for a government program, but the government is providing strong financial incentives not to "dilute" a certain race.  Hawaii über alles.

By the way, those who don't think that passing assets to one's kids is an important part of long-term investment thinking should compare the houses built by program participants who know their kids cannot inherit to those built by those who will be able to pass the investment to their kids -- there is no comparison.  This would make a very fertile ground for an economics graduate student trying to quantify the value people assign to the of passing assets to one's kids in long-range investment planning.

Anyone who is still trying valiantly to take our Congress seriously can stop now:

Rep. Joe Barton, R-Ennis, chairman of the
Subcommittee on Commerce, Trade and Consumer Protection, will conduct a
hearing next week about the BCS....

When asked to explain the timing of the hearings, a spokesman for
Barton referred to BCS history. Before this season, four of the seven
BCS years have resulted in championship game controversy.

"The BCS system was created to identify a broadly accepted national
champion, but 57 percent of the time it has failed to do so," Barton
said in the news release. "Most coaches who lose 57 percent of their
games would also lose their jobs. Yet that's what we settle for in
determining a champion today."

Wow, it must be the 30th Amendment:  Congress shall make no law abridging the right of Division 1 college football fans to have a clear national champion.  I wonder if this is just a ploy to get free Rose Bowl tickets?

Everyone in Congress.  Go home.  Now.  Don't come back.