Month: October 2004

Gross Duhmestic Profits

The new Gross Domestic Product numbers for the 3rd quarter of 2004 were announced today. It was up 3.7%, more than last quarter’s 3.3% but less than the expected 4.2%

What the heck does that mean? Well, GDP is everything any of us spend minus any money that got sent overseas. Consumer spending + business investment + government spending – trade deficit = GDP.

In consideration of comments made earlier this week, I would like to direct your attention to a paragraph about halfway into that last link:

“It’s a pretty good growth rate, but it may not be enough to create jobs,” said economist Robert Brusca of Fact and Opinion Economics in New York.

Now think about that, business investment is up 11.7% over last quarter, and that may not be enough to create jobs? That’s just one leg of this table, but frankly without jobs, there can’t be increased consumer spending, the second leg of the table — accounting for 2/3 of the economy all by itself, it’s the most important leg. We know that there is anemic job growth and wages rose less than a percent, but consumer spending rose 4.6%. Therefore either savings are being depleted or debt is being piled up. Neither is good for us in the long run.

So money is coming out of our pockets. Where is it going? Much of it becomes corporate profit. Another large chunk goes overseas, aided and abetted by tax loopholes that encourage companies to move their headquarters if not their workforce overseas and a Treasury Department that is of the mistaken belief that a weak exchange rate for the dollar will improve the trade deficit.

You can see both these forces at work in the world of oil. Look at oil company profits, which come from money that was spent by consumers, businesses, or the government. Oh, and don’t forget that the lions share of that oil came from outside the United States, and therefore gets subtracted from GDP. OPEC believes that the United States could single handedly bring down oil prices, by the way.

That’s right, the big oil cartel thinks the little ol’ United States is controlling oil prices, keeping them artificially high.

If you only have time to read one more thing today, let it be these 100 facts, complete with supporting links.

Obfuscation is Job One

This morning, I was listening to NPR. During one segment, they discussed the conflicting job creation numbers cited by Mr. Kerry and Mr. Bush as they slog through the last week of vicious campaigning before election day. Mr. Bush claims there have been 1.9 million jobs created on his watch, while Mr. Kerry contends that millions of jobs have been lost in this administration. The NPR interviewer asked an expert which of these figures is correct.

The expert replied basically that both were, depending which set of figures were used and when you start counting. Bush used the household survey — calling a random sample of Americans on the phone and asking if they are working — and begins counting in August of 2003. After all, he says, 9/11 happened and economists’ opinions aside, you can’t blame him for jobs lost because of that. Of course Reuters is kind enough to point out that the 1.9 million jobs also counts jobs expected to be created through February of 2005.

Mr. Kerry, on the other hand, starts counting at the beginning of the Bush Administration. After all, the buck stops there, right? Furthermore, he uses the employment survey — which most economists prefer because it asks companies exactly how many people are on the payroll. It doesn’t count illegal workers or contractors, but there you are.

The NPR interviewer then asked which number voters should be paying attention to. My answer is neither. The number you need to pay attention to is 6.75 million. That is the number: the absolute bare minimum number of jobs that should have been created in the 45 months and counting of the Bush Administration just to keep up with new people entering the workforce. Those 6.75 million people don’t count in the big unemployment number. They can’t collect unemployment benefits because they never had jobs.

If you are one of those “undecided” voters, here is a handy rundown of official positions on various issues. Please keep in mind that sometimes what they say is not necessarily what they mean.

Vote Yes on Bread and Circuses Proposition

I realize this puts me in a minority, but I am not a big fan of voter initiatives. Some states vote on amendments to the state constitution, but the function is the same: an idea for whatever reason cannot be forced through the state legislature, so a sufficient number of signatures is collected to put the item on the ballot, where ordinary citizens can make it law. Supporters say this is the very heart of the democratic process, giving Joe and Jane Average political power over the representatives they, um, elected to government.

These initiatives always have titles and descriptions that make them sound like good things, if not complete no-brainers. The Initiative to Hug Cute Bunny Rabbits, for example. Washington’s I-884 is described as “concerns dedicating funds designated for educational purposes.” Gee, how can you not vote for dedicating money to schools you heartless oaf?

The problem is that this description, like that of many initiatives, is misleading. This one raises sales taxes, and theoretically earmarks the money raised from this tax for education only for the next two years. Such initiatives are often boiled down to their summary paragraph form from pages of legalese (11 pages in this case) that frankly, nobody wants to read in detail. You just have to take their word for what it says.

This process has also been hijacked by special interests seeking to avoid legislative “interference” in their agenda. There’s big money and big players involved, subverting the noble sounding idea of citizens forcing important ideas into law.

Another reason I don’t like voter initiatives is that they often if not always have unintended consequences. In fact, I’ll go out on a limb and suggest maybe that’s why the legislature couldn’t get the idea passed in the first place. Voters vote themselves lower taxes and therefore there is no money for fixing roads. Voters vote to make certain kinds of animal traps illegal and it is suddenly hard to get rid of nuissance coyotes and raccoons. The highest profile example is California’s “3 strikes” law, passed by voters years ago. The practical result was that people were getting harsh sentences for minor crimes, just because it happened to be the “third strike.” Such laws are also blamed as a factor in current record level prison populations. So now, California is having a ballot initiative to repeal a ballot initiative.

Also, because we don’t vote every month, we end up seeing many of these initiatives all at once. Sometimes, we see them for the first time on Election Day. Florida has 8 to worry about. Washington has 5, California has 16. Your milage may vary, but it might take some time to figure them all out if you don’t like my method of dealing with them.

I will be voting NO on each and every voter initiative on this November’s ballot.

Say, Haven’t I Seen You Here Before?

Less than a year ago, we were talking about a scandal at Putnam Investments — and many were calling it the actions of “a few bad apples.” Now we are talking about scandal at it’s parent company, Marsh & McClennan. Another “few bad apples”? At what point do we stop talking about bad apples, and instead wonder if the whole tree isn’t rotten? According to at least one analyst, right now: “‘You’ve got to rework the culture of Marsh,” said James Huguet, who manages $1.4 billion at Great Companies LLC and has been selling Marsh shares.”

Here’s the short version of the story. New York Attorney General and future Gubernatorial candidate Eliot Spitzer has launched a probe into a dubious insurance industry practice of “contingent commissions or placement service agreements,” or “fees… over and above ordinary commissions, that brokers receive from insurance companies, mainly for steering volume business the insurer’s way.” In any other industry, we would probably shorten this description to “kickbacks.” As if that weren’t enough, there is also the possibility of nepotistic insider action, as the CEO of MMC is the son of insurance giant AIC’s CEO.

As if this isn’t bad enough, there is the possibility that MMC may have outright fabricated inflated insurance bids to give the illusion of competition, and steer clients to “cheaper” partnering companies.

The fees in question total over a billion dollars during 2003 and the first half of 2004. My inner cynic reminds you that this is $1 Billion in overcharged premiums paid by the public. With this much money at stake, it is no surprise that some investors aren’t sticking around to see who wins.

The Putnam executive who got tossed overboard a year ago has some interesting comments on the whole thing, with what he calls “the luxury of perspective.” Or, maybe you’d like commentary from a guy who has known both Spitzer and the Financial Services industry for decades.

I’m no New Yorker, but I’d vote for Eliot given the chance.

Bad Sentiment

It seems that the American People think things are not all skittles and beer.

The University of Michigan’s consumer sentiment report is down substantially from September’s 94.2 to a current 87.5. Even the most pessimistic analysts had expected 92. But wait, there’s more. The consumer expectations index dropped over 9%. Here’s The Associated Press, via the Seattle Post-Intelligencer, and here’s a very comprehensive article from Bloomberg. I particularly like Bloomberg’s explanation of why the numbers are so abysmal:

A 34 percent surge in gasoline prices this year is forcing consumers to spend more of their budgets to drive. U.S. payrolls have increased less than forecast in the last four months. Democratic presidential candidate Sen. John Kerry is running ads blaming President George W. Bush for the loss of U.S. jobs and declining real wages.

In short, things stink, and Joe Average isn’t expecting them to get better.

Meanwhile, Mr. Ashcroft has taken a break from fighting terror and crime to crack down on piracy and theft of intellectual property. Clue to the record and movie industries, try producing something people want to buy. Ashcroft’s strange priorities leave guys like Eliot Spitzer free to deal with issues like, oh, wildly inflated insurance commissions that drive up costs for everyone. It’s even costing Wall Street types money, as they furiously bail out of what they thought were good, solid insurance stocks because “nobody knows what’s next.”

“So far during the Bush administration, the Michigan index has fallen by 18.6. President Bill Clinton enjoyed an 18.8 gain over his term,” The Seattle Post-Intelligencer reports. Furthermore, the President’s approval rating is slipping. Expect a rise in the terrorist threat level any minute now, and a subsequent lack of substance from Corporate Media.

Talk about a nuisance

John Kerry has taken a lot of heat over his comments about reducing terrorism to a “nuisance level.” People are asking what exactly that means.

Well, remember when a bomb going off in a bar or on a bus was a sad thing that happened somewhere far away? Remember when PanAm flight 103 went down over Lockerbie and no countries were invaded as a result?

What, you didn’t think September 11 was the first instance of terrorism ever, did you?

We can’t prevent all terrorism everywhere in the world any more than we can prevent all murders. There, it’s been said, it’s unpopular, it’s true. The President says “Our goal is to defeat terror by staying on the offensive.” How do you defeat terror? How will terror surrender? Who will sign the armistice? And against whom shall we be offensive? If it was alright to go into Iraq to stop terrorism, why not Chechnya or Palestine? How do we minimize the fact that the War On Terror will leave civilian casualties which will result in Anti-American sentiment, breeding the next wave of terrorists?

So we come quickly to the realization that the United States can at best prevent terrorism in the United States and against United States interests such as embassies and military bases/ships.

Anti-terrorism efforts should be primarily a law enforcement action. And that’s not a bad thing. A cop who knows his beat will notice when something is wrong, and we must trust that he will deal with the problem appropriately, as he has been trained to do. But just as the police can’t stop crooks by random searches of passers-by, we will need to use judgment about what methods to use. We will have to ask questions like what are we trying to prevent? Is that a reasonable threat? Will our methods work? What will it cost? Will it cause more problems than it solves? Is the action justifiable in the eyes of the people and the law?

We need to stop saying “That’s fine, as long as it keeps me safe” and start asking “How does this make me safe?”

Does this make you safer?

Money Makes the School Go ‘Round

It’s October. Do you know where the paperwork for the latest school fundraiser is?

School fundraising has become big, big business. In a world where you almost can’t go a week without hearing about some cash-strapped school somewhere, it seems like a no-brainer to sell the community something of “value” and make money that is sorely needed. And of course there’s that captive work force of young people. The result is that if there is a school in your neighborhood, there is a fundraiser in your neighborhood.

I don’t really mind short fundraising events with clearly defined goals. A bake sale to raise money for kids who can’t afford to go on the class trip? I’m there! I don’t have a problem with the annual Book Fair either: not only do kids get an opportunity to own actual books they might read, but the school library gets money for — you guessed it — books! Actual educational materials! Radical thought! But it seems like every year there are more fundraisers with more nebulous goals and unstated purposes. Such events are counterproductive to the educational environment, and often to the needs of the community.

Fundraisers waste valuable classroom time. Every minute a teacher spends collecting order forms, answering questions about the fundraiser, or dealing with money from the fundraiser represents time he or she could be spending teaching or dealing with other classroom issues. Furthermore, any time a student spends listening to a company representative talk about a fundraiser, whether that time is in the classroom or (worse yet) in an assembly, is time that student is not reading, writing, doing math, working on a science experiment, or anything else that might educate or enrich. Fundraisers have never claimed to have any intrinsic educational value of their own.

Fundraising promises can be misleading to schools. Schools are promised a cut of the action, sometimes as high as 50% or even 90% with “no money up front.” Of course that doesn’t include administrative hassles and lost productivity. How much is the Principal’s time worth on an hourly basis? Furthermore, since the fundraising company’s job is to sell fundraising materials, the target projections may find themselves artificially inflated. Chinese math may ensue: “You have 500 students. If each sells $100 worth of product — and who wouldn’t want to sell $100 of our fabulous product — that’s $50,000!” Never discussed are shrinkage or cancelled orders.

Fundraising incentives are often misleading to students. Sell an impossible quantity of the product of the month and get a swell prize. (Administrators, please do not pay any attention to where the money for these prizes comes from!) Of course, all your classmates are your competition. To win the big prize, you clearly have to sell a lot of product not only to everyone you know, but to people you don’t know too. Oh, but wait, every school fundraising site out there specifically has the disclaimer that they don’t encourage unsupervised door-to-door selling. That brings us to….

Fundraising is intrusive to the entire family. There is great pressure to buy the product of the month. Furthermore, many parents feel obligated to take the ordering materials to work, to hit up the friends and relatives for orders, to take the kids on a supervised trip around the neighborhood. More than one parent has thought “How big a check to I have to write to make this go away?”

While fundraising products are always premium priced, they are often of unknown quality. Let’s just take coffee as an example. You know that you can go to the grocery store and buy 12 ounces of coffee grounds for $5, or you can buy the fancy grounds from a big name coffee place for more like $8-12. And that is how fundraiser coffee is priced. But you know what you are getting if you buy Folgers, and that it’s not the same as buying Starbucks or Peets. The only assurance you have that the fundraiser coffee is not utter swill is the word “gourmet” on the catalog. Frankly, the school might get a better deal from a wholesaler: product will be of a known quality, and no middleman gets a cut for providing flashy promotional materials.

Fundraising exacerbates the gap between schools in wealthy neighborhoods and in poor neighborhoods. Think about it. Rich school has no money for new team uniforms? Have a fundraiser, problem solved. Poor school has no money for additional textbooks? A fundraiser has to be absolutely fantastic to do the job. In poor neighborhoods, many families do not have money for gourmet coffee, overpriced wrapping paper, or frozen cookie dough. It isn’t that these people don’t care about their kids education, it’s just that they’ve already given everything they can.

Schools have a lot of things they are worrying about right now. Just for starters, there are the regulatory demands of “No Child Left Behind” and school violence and an official Look Out! notice from the Department of Education and even security issues at schools that happen to be polling places. Fundraising should be the least of their worries.

Space, the Final Frontier

Today was a really exciting day in the future of human exploration of space. Space Ship One did it’s second flight with (simulated) passengers in less than 2 weeks, earning the Ansari X Prize.

The craft was designed by aircraft design genius Burt Rutan — who by the way has a space station design rolling around his office — and funded by eccentric billionaire Paul Allen. Of course sticklers for accounting will note that Mr. Allen put up over $20 Million to win part of a $10 Million prize.

This is important for a number of reasons. First, it should be clear that the Space Shuttle and Soyuz craft are nearing the end of their useful design life. The need to fix stuff and carry on with experiments in Earth orbit will not go away just because we humans are driving a proverbial old beater to get to work.

Second and more important, they did this without any backing from any nation, and minimal corporate backing. No members of the G8 signed off on this. No Boeing or Lockheed engineers did any work on it. They didn’t get truckloads of parts from Pratt and Whitney or from GE. In fact, Virgin Atlantic — er, I mean Galactic only got involved last week. They did this on a shoestring budget. At least a shoestring in astronomical terms. They proved it could be done this way: low budget and government free.

But is this a place that mega-money will be made in the next decade or so? Remember, endorsements aside, Mr. Allen is in the red on this project. Whether Mr. Branson makes money on his flights remains to be seen. Some financial whizzes say that air travel is a money hole all by itself, so it does stand to reason that space travel would be even more so. And the opportunities to invest in the future of space travel are scarce.

As much as many of us would love to go into space, I think we’ve got a bit of a wait for those super saver weekend getaway tickets.

Apology

Please accept my apologies for being completely wrong yesterday. I bought into the spin that the debates were fake and didn’t matter — a viewpoint which was strengthened by the inadvertent release of rough drafts of a debate wrap-up by a prominent news source hours before the debate itself. For the record, it is an open secret that news writers often pre-prepare likely news stories (e.g., obituary of public figure battling deadly disease) with room to fill in the details.

The New York Times put it most succinctly: “In the end, it was a real debate….”

It turns out that average Americans think Kerry won, even though NPR this morning proclaimed that it would be days before “public opinion gel[led]” and we know exactly what happened. Um, yeah. Oh, and if you’d like an outside opinion about what was said, The BBC has a nice wrap-up, with a PDF of the transcript available for download.

Many things have been said across the Greater Blogosphere about what was said and what it means. I will leave you with the one most important thing I heard. I know it was important because President Bush said it several times: “[Kerry says] It was the wrong war at the wrong place at the wrong time.” This attempt to hearken back to the “risky tax scheme” meme that Clinton and Gore beat senseless in the ’96 debates backfired. Instead it sounded like he was making his opponent’s point for him. By the third time, all I could think of was “Quick! Don’t think of an elephant!”

Thinking of an elephant, aren’t you? Not me, I’m thinking of the next debate. It will be interesting to hear what these guys have to say about domestic policy.