Why Can’t Johnny Make Ends Meet

It does not take an expert to see that families are having a hard time in America. Manufacturing jobs — long seen as one of the best ways for a man with no college degree to support his family — are vanishing. The tech bust has left many educated professionals scrambling to avoid long term unemployment. Among those lucky enough to still have jobs, Americans have less leisure time than anytime after the 40 hour workweek was “mandated.” Schools are by all accounts not giving young people an adequate education, particularly when compared to the education of 50 or 100 years ago. Our children’s academic accomplishments are dwarfed by those from most other industrialized nations. Crime rates are dropping, but Americans feel less safe than ever. Personal debt is at incredible levels, consumers are desperate to refinance where they can, and the Government has sold them down the river by tightening up bankruptcy law and adding needless layers of complexity under the guise of a “tax cut.”

There are many theories regarding the causes of “The Problem With America These Days.” Unfortunately, many of them center on such untenable ideas as “It’s because we’ve lost Old Time Religion” (oh yeah, things were much better in Salem) or “It’s because there’s no respect for the Family anymore” (define respect and family so we can talk) or even “It’s all the fault of Women’s Lib and mothers working outside the home.”

The idea of Moms With Jobs is really not that new. Moms have been helping out with the family finances since biblical times and through the ages, but the amount of work required to run a family home had generally prevented most moms from being full time members of the workforce.* Mandatory school attendance and labor saving devices have made possible the Mom With Career. However, both parents working can be a surprising drain on the family finances.

There are expenses associated with work beyond increased tax liability (the argument used by some Republicans in the past about “mom working just to pay the taxes” is ludicrous, since you aren’t taxed on money you don’t make). To send mom to work means she will need more reliable transportation than she would need to just get the groceries, take the kids to school, and pick up the dry cleaning. Speaking of dry cleaning, she will need work attire, and she will need to have it cleaned. She will also have to arrange child care, which is by no means inexpensive, particularly if she wants licensed care by someone who will not jeopardize the health and safety of her child. She will also be having lunch out more often, meaning she will spend a whole lot more on lunch than if she were eating peanut butter sandwiches with the kids. There will also be a lot more take-out and convenience food in the family menu, and that is going to cost more money. Despite the potentially deleterious effects on the family health and waistline, nobody is really going to want to cook a nice meal after working all day and fighting traffic home. These costs vary from family to family, but they add up in a hurry. They can easily consume mom’s paycheck.

Bankruptcy expert Elizabeth Warren admits this while offering up another way that the two-income family is falling behind. If I may quote: “Presenting carefully researched economic data to support their arguments, the authors contend that, contrary to popular myth, families aren’t in trouble because they’re squandering their second income on luxuries. On the contrary, both incomes are almost entirely committed to necessities, such as home and car payments, health insurance and children’s education costs. When an unforeseen event such as serious illness, job loss or divorce occurs, families have no discretionary income to fall back on.” Her thesis specifically includes the idea that, based on their aggregate income, families are buying (and bidding up) houses in desirable neighborhoods with good schools. Furthermore, that “more reliable transportation” I mentioned as a necessary expense of mom working often is turning out to be a new car that the family can only afford because both parents are working. Interestingly, this book was written with her daughter; this would tend to suggest she knows something about being a Mom With Career. This is not from some two-bit economist sociologist wannabe, but from a distinguished Harvard professor with a list of publications and accomplishments longer than your arm. Nevertheless, the ideas are controversial.

Be of good cheer, as she does provide suggested solutions. First, arrange the finances such that necessities can be paid out of one paycheck. Then the second income becomes truly “extra” and can be used on luxuries like saving for retirement or eating out without guilt. She furthermore suggests regulatory reforms to require bigger down-payments on houses to discourage getting overextended on mortgage payments, capping credit card interest rates and fees, school vouchers, and better education about financial planning for those of us who have more liabilities than assets.

Something to think about.

* The single mother has also been with us throughout the ages, since the first time a father died or walked out on his family. Single mothers almost by definition have to earn a living in addition to all the expected activities of Mom. There is nobody else to do it.

Same As It Ever Was, or Numbers Lie

The markets in the United States are having a nothing day, as everyone digests conflicting data. While manufacturing appears to be expanding, manufacturing output is falling. Meanwhile, there are fewer jobs and continuing layoffs. Nevertheless, some economists are predicting 4.0% growth in the Gross Domestic Product — a figure Reuters reminds us is “the fastest pace since the height of the boom in 1999.” Furthermore, although there is scant coverage of the fact, they are predicting profits to grow even more than that. Nevertheless, inflation is expected to stay low, that is as long as you don’t include gasoline or insurance rates. In the midst of all this, the Fed is expected to sit on their hands when they meet tomorrow. Nothing to see here, the economy is fine. Right?

Meanwhile, WalMart reports that same store sales growth will be near the top of the estimated range.

Growth is great! It is un-American to say otherwise. However, growth in profits in the long term cannot exceed growth in the GDP. Otherwise the GDP would rise, not just because all those goods were sold, but because they had to be manufactured and shipped. Short term, such hyper-growth is made possible by taking market share away from competitors (which only lasts until competitors change business practices to compete better, or go out of business), having an innovative product (which lasts until everyone who wants one has one), getting into new business segments (either by continuous research and development, or by acquiring other companies, neither is sustainable), or by accounting legerdemain (Enron, Cendant, Worldcom, the list goes on). Similar arguments go towards continual sales growth. One additional and important constraint exists on those “same store sales” that the retail sector is always on about: one business location has finite capacity. You can only cram so many people into a WalMart. You can only make them buy product so fast. You can only put so much merchandise on the shelves. Making the store bigger is expensive and only pushes the problem out a little.

If I sound skeptical about the idea of continued corporate growth in excess of GDP without creating inflation, it’s only because I am.

Nine Eleven

Today is the anniversary of what is debatably the single saddest day in my lifetime.

Two years ago today, 19 nut-cases hijacked 4 airliners full of people and fuel. They destroyed the World Trade Center, damaged the Pentagon, killed about 3000 people — an astonishingly low number considering the time and place — and took away our innate sense of security.

The occasion was commemorated in New York City as well as other places with moments of silence.

Around the world wreathes were laid, prayers were said, names of the dead were spoken, commemorative gardens and art exhibits were opened, blood drives were conducted, parades were marched, school children sang patriotic songs, heads of state gave speeches denouncing terrorism. In addition, nations were put on alert, and there were calls for curtailing civil liberties in the name of the War on Terror.

Closer to home, a local mini-mart chain was giving away free deluxe car washes.

Clearly that’s what it’s all about. Moments of silence and car washes.

Free Travel Advice

Yesterday morning, I heard a brief interview with 3 members of the United States Travel and Tourism Promotion Advisory Board. The purpose of this board is to come up with ways to encourage international travel to the United States. They have been given a $50 million marketing budget by the President. Members include the heads of regional convention and tourism boards, hotel company executives, airline executives, and Commerce Secretary Don Evans. Some of these men are also members of the World Travel and Tourism Council. Although it does not surprise me that I was not invited to join this prestigious committee, I would like to offer my ideas on the subject. As usual, free advice is often worth what you pay for it.

First, I’d like to point out to the esteemed gentlemen that the majority of travel and tourism in the United States is done by people who already live in the United States. Sure, maybe it doesn’t bring “new” money into the system when someone from Iowa makes a trip to Chicago, but that person does spend money on food, hotel, activities, and collectors spoons that they would not have spent in Iowa. Furthermore, the kinds of things that keep us Americans from traveling are exactly the kinds of things that keep international tourists away.

Next, get the Department of Homeland Security to stop issuing warnings that say nothing more than Look Out! Speaking as an American, I don’t mind legitimate warnings, but most of what we hear is nothing more than vague scary stuff. We don’t want to hear “Orange. That is all.” We want something we can think about and maybe act upon. The few times there have been specific warnings — for example, recent warnings that there might be another hijacking or airliner bomb, or 2002’s warning that banks in the Northeast might be targeted — were met with no change in the terror alert level. To further complicate matters, genuine threats were met with no change; why didn’t the Washington area get an orange or even red alert when they had sniper problems? In short, we need something to “Look Out!” for, even if it’s a little vague, and we need regional alerts. People in other countries really do look at the terror levels before buying plane tickets.

Another thing you could do to encourage tourism is to stop treating everyone at the airport as a potential terrorist. There, I have said it. I don’t think most of us mind going through the metal detector. However, a lot of us are beginning to think that some small minority of screeners like to deliberately humiliate us through invasive searches and gratuitous confiscations. It is apparent that the list of prohibited items for carry-on luggage varies by screener and airport, regardless of what the official Federal list may say. Furthermore, now that it is perfectly legal for the TSA to break into our luggage and search it, have they found so much as a single bomb or vial of anthrax? Guns and ammo don’t count; it’s legal to pack those in checked luggage. Have we done adequate screening of the screeners to make sure they aren’t using this golden opportunity to steal from honest passengers?

Prescreening has been widely sold as an idea that will prevent unnecessary searches and speed up the security line. Nothing could be further from the truth. As long as it is suspected that people will bring weapons onto aircraft, the security line will stay where it is, and everyone will have to go through it. Today, we find out that the proposed prescreening system will color code travelers — color coding worked so well for the DHS — and rate them according to perceived security risk. Green passengers may board immediately; 8% will be rated yellow and get further screening; 1% to 2% will be rated red and not allowed to fly, maybe even get arrested, and there is absolutely nothing they can do about it. Now think about that. A Boeing 747-400 can carry up to 568 passengers. If 1% of passengers are designated code red non-flyers, that is an average of 5 on every single flight. On a busy holiday weekend, Chicago’s O’Hare airport has over 1 million travelers. Do they have room for 10,000-20,000 detained code red non-flyers at the airport? A single terminal at Dallas-Fort Worth International Airport accommodates 12.8 million flyers annually, an average of 37,000 every single day. That’s 370 code red non-flyers every single day from a single terminal. Double these numbers if you suspect the number of code red non-flyers will actually be closer to 2%.

That is just the practical consideration. Don’t forget the Civil Liberties considerations. Groups from the American Conservative Union to the ACLU are concerned. The TSA spokesman says “Not only should we keep passengers from sitting next to a terrorist, we should keep them from sitting next to wanted ax murderers.” The ACLU director replies “You could be falsely arrested. You could be delayed. You could lose your ability to travel.” What is the criteria for arrest anyway? Having an outstanding parking ticket? Having the same name as someone who is a criminal? Even victims of identity theft could find themselves spending their vacation not at a resort, but in jail. Is there the possibility this could be used in a politically expedient fashion? Yes.

So then, Secretary Evans, esteemed members of the Board, if you would like foreign tourists to come back to the United States, you had better do something about Americans traveling within our borders. They are not a captive audience.

Yes, in answer to your question, Look Over There!

Do you remember George Bush the First on the campaign trail in 92, expressing amazement at the technological marvel known as the supermarket scanner? His son’s administration is every bit as “in touch” with the American People as he was.

The War on Terror: This week we will pass the 2 year mark, and frankly the only real progress is being able to color code our semi-rational fears. We’ve arrested a bunch of people, browbeat some into plea bargains that are very likely of the “I can’t prove I didn’t do it, so can I at least go minimum security instead of Federal Asspounding Prison?” variety. We have consolidated a bunch of Federal agencies into a Medusan mess known as the Department of Homeland Security. We squandered the opportunity to meaningfully upgrade airport screening and instead gave them even more authority and even less accountability. Oh, was accountability only for school districts? Have no fear, we will know more tonight at 8:30 Eastern.

Afghanistan: We really took care of Osama there, didn’t we? Oh, right, we never found him. Well, we got rid of the Taliban. Sort of. We stood up for the human rights of women. In retrospect. But we did install a friendly government and Karzai is doing a great job. If he were the Mayor of Kabul, he would be doing a fabulous job. Unfortunately his grip on the rest of the nation is somewhere between tenuous and non-existent.

Iraq: Somewhere between the shifting reasons for being there and our shifting target for getting out lies Blood and Oil. Ironically, modern Iraq was created at the end of World War I when the British decided it would be bloody handy to carve out some nice oil producing region of the Ottoman Empire and install a nice friendly regime there. The Americans have arrived 85 years later with the same failed plan and are telling us how wonderfully it is working. Furthermore, if anything is going wrong, it is the fault of the pesky people who actually live there! Never mind the fact that almost everything they had 6 months ago is destroyed — except for the oil, and it turns out that won’t really be enough to pay for everything.

World Trade: The Administration wants free and fair trade, except when it comes to agricultural products, steel, and Iraq reconstruction. In those cases we will subsidize farmers for producing more than could possibly be needed, illegally tariff imported steel to protect long since closed uncompetitive steel mills, and award billions of dollars in contracts without any bidding and without any effort to involve the people already there. No, we’re too busy mucking about in Chinese monetary policy.

Civil Liberties: The PATRIOT Act has come under such fire that Ashcroft had to do an old fashioned road show. Several state and local governments have decided not to comply with PATRIOT. Some entities have decided that the easiest way to comply with potential search warrants under the act while still protecting the privacy of patrons is to keep as few records as possible. Congress has had to seriously reconsider some provisions and potential expansions. Ted Koppel has had enough.

The Economy: Oh yeah, the economy. The President himself says “We’ve got positive growth, which is good.” He goes on to assert that home ownership is good, it’s a shame there are so many people out of work, and kittens are cute. Just kidding, he said nothing about kittens. He does seem to be under the impression that somehow the changes in labor rules (there is still time to write your Congressman) which will reduce the number of people eligible for overtime and allow the insidious practice of “comp time” will result in more people getting overtime pay. I guess I’d have to get an MBA for that to make sense. The truth is that this country is losing jobs and this plan — like the tax cuts that were supposed to have already saved the economy — will make it worse. However, Labor Secretary Elaine Chao has good news for the 2.7 million people who permanently lost jobs in manufacturing: we will need 1 million new nurses in this country over the next 10 years. This figure, as announced on CNBC, will be of great comfort to their children.

No wonder the President’s approval rating is down.

Too Much of a Not Necessarily Good Thing

I probably watched too much television as a kid.

There was an episode of Fantasy Island that I remember where a psychologist is trying to figure out what makes “bad girls” tick. The suave and slightly magical Mr. Roarke — whose perfectly pressed white suit had not yet been supplemented with post “Wrath of Khan” chest baring shirts — gives her a potion and admonishes her to only take 3 drops at a time. Her newly released Inner Bad Girl is such a hit that her Good Girl self is kidnapped by Bad Boys who decide that if a little of this potion makes her Bad, even more will make her even More Bad — in a Good way of course. At this point she becomes completely uncontrollable.

Regulation and Deregulation are much the same way. A little is probably a good thing, but too much makes things uncontrollable. Most regulation happens because a clearly bad situation has arisen. For example, Texas has a state law saying landlords have to change locks between residents on their rental properties. A common sense thing that reputable landlords have always done had to be made into a law because some landlords weren’t doing the right thing. Whenever I see a particularly odd law, I remind myself that some legislative body thought it was important enough to draw up, vote on, and get somebody to sign.

This is in contrast to various laws that had unexpected consequences. For example, when the Social Security Number was invented, nobody thought it would be used as a universal identification number. In fact, the law prohibits using it in this way. By way of a more recent example, the No Child Left Behind Act states the lofty goal of improving performance in every sub-group of every school. Failure to do so has Federal implications. However, this does not allow much flexibility to the few truly excellent public schools, who must somehow surpass the extraordinary each year. By not providing a baseline performance other than “better,” they fail before they begin.

Regulations made by various government agencies are a slightly different animal. Since these agencies are not elected, and are often difficult to reign in, they sometimes seem to make rules just for the sake of making rules. Some of these rules will have clear valid reasons, others will be compromises between multiple points of view, some will be indirect political favors, and some will be nothing more than a wild hair. Some of these will indeed be so egregious that Legislators or the Courts will step in.

With many sources and years of regulation, it is easy to see how the rules can get very complicated and perhaps even contradictory. In addition, it can be expensive to figure out what the rules are and comply with them. The fundamental idea behind Deregulation is that by taking away unnecessary rules, it will be easier to do business. Theoretically this can even create jobs. The truth is that deregulation is just as prone to unintended consequence, abuse of authority, and political intrigue. Not only does deregulation tend to “throw the baby out with the bath-water,” it tends to rewrite rather than revise regulation.

Two prime examples are playing out in Washington as we speak. In the wake of August’s massive blackout, calls for reform are being answered with Bush’s original proposed Energy Policy, drilling in the Arctic and all. Congress is not amused. They asked specifically how drilling holes in the ground up in Alaska was going to keep power on in the lower 48 and as nearly as anyone can tell did not get an acceptable answer.

The other current example of bad deregulation deals with a law you may never have heard of called EMTALA. That’s the law that says (if I may oversimplify) that Emergency Rooms have to see anyone who comes in regardless of insurance, and that specialists have to be on call to help patients. The one main problem is a grey area: hospital owned clinics. Does a hospital’s off-site clinic fall under the same rules as the main campus? Rather than simply clarify this issue, the rules will be gutted. As a patient, you will risk becoming a human pinball if you have the wrong kind of insurance, or the wrong kind of injury, or simply come in at the wrong time of day. Because this is a “rule” amended by the Bush Administration, it will be very difficult to overrule, but not impossible.

Maybe you’d better not have a medical emergency after November 10, 2003.

A Tale of Two Cities

In this Jackson Hole, we have Alan Greenspan, proclaiming his belief that “The U.S. economy and the global economy are now better able to withstand shocks because of government deregulation and more flexibility in such areas as labor markets.”

Meanwhile, in Washington DC, we have Ohio Democrat Representive Sherrod Brown proclaiming on behalf of the party “In the last two and a half years, since George Bush became president, our nation has hemorrhaged 2.5 million manufacturing jobs…. Ten percent of our manufacturing jobs have disappeared. … Good jobs in steel and auto and textiles.” Days later, President Bush finally has acknowledged that just maybe, this loss of manufacturing jobs in our economy is a problem. Particularly for a man who would like to be re-elected.

Now then, in what ways have deregulation improved our lives? Deregulating airlines has resulted in the hub-and-spoke system, substantially lower airfares, and a parade of airline bankruptcies putting both skilled and unskilled workers out of jobs. Deregulating the power grid has resulted in energy traders gouging the American consumer for their “well earned” mark-up, an unreliable power transmission system, and Enron. Deregulating meat packing may have kept meat prices down, but it has definately made life tough for the small rancher, and compromised the safety of our foodstuffs. Deregulation of financial institutions has, um, meant we can do all our banking and brokerage business with one company. Deregulating telecommunications may have facilitated the rise of the internet, but it also may have also facilitated the rise of WorldCom. Deregulating telecommunications, cable, electricity, and a host of other things was supposed to bring prices down for consumers; instead of putting money in consumers’ pockets, it lined the pockets of a few potentially crooked executives.

And can we talk about this flexible American worker for a few minutes? The American workforce is currently the most productive in the world. The American worker makes this possible not just by the judicious use of technology (you aren’t reading this at work, are you?), but mainly by putting in longer hours than anyone else in the world. An average* American worker put in 1825 hours in 2002, generating over $60,000 of value to his employer. That breaks down to $32 per hour. The hourly is higher in several other countries, but as one economist on the project put it, “If you work 15 hours a day, of course there are hours when you are not as productive as if you only work six hours a day.” Efforts to “reform” overtime pay regulations will not improve matters. In addition to working more hours, American workers are dealing with more dangerous workplaces than in much of the developed world. We encounter abusive customers, co-workers with weapons, clueless supervisors, tactless coworkers, repealed OSHA regulations, and bosses who try to cover up workplace injuries wherever possible. Wages are going down, good jobs are harder to find, and job security is a fairy tale. It would appear that “flexible” means “able to suck up any and all hours and hardships just to stay employed.”

As “productive” and “flexible” as the American worker supposedly is, it is amazing that jobs are still vanishing overseas. And not just those quality, high wage, high benefit manufacturing jobs Representative Brown is referring to. High tech, decent paying jobs are being sucked away from the American economy. Tech support is being outsourced to former British colonies such as India, taking advantage of English speakers who will accept wages that are low by American standards. All the while, customers with now-tenuous employment are being told that this exportation of American jobs saves them money.

Happy Labor Day. Particularly if you are one of the lucky people with employment, and one of the even luckier people getting the day off with pay.

*Unfortunately, the people covering this study fail to mention whether by “average” they intend the mean, median, or mode. We therefore must assume they are using whichever figure makes the data look better.

But what is step 2?

Do you suppose it would be possible for people to think more than five minutes into the future?

Up in Sultan, Washington (a little bit North of Seattle), a radical animal rights group called ALF set free over 10,000 farm raised minks. This is not the first time they have done such things. ALF, the Animal Liberation Front, is a sister group to ELF, the Earth Liberation Front, the very same group that decided to liberate those SUVs last week. They are widely considered to be “eco-terrorists,” and are included on the FBI’s list of domestic terrorist organizations.

In a move reminiscent of the WKRP General Manager saying “With God as my witness, I thought turkeys could fly,” ALF seems to have believed that if they set free all these semi-carnivorous semi-wild animals, they would romp, frolic, multiply, and live happily ever after in the splendor of the Great Northwest. Things aren’t working out that way. About half never made it out of the farm, milling about the cages in confusion. Some 200 were hit by cars, killed by dogs, or died of dehydration. The overwhelming majority were back in their cages within 24 hours. The thousand or so that got away, however, are causing a little problem.

Now then, what do you suppose would happen if you set loose a thousand little predators in the woods? Why, they’d get hungry. And what if they were raised in a non-hunting environment? They’d have to find something easy to kill. Like maybe some nice, domesticated poultry. Yes, in addition to being prime country for fur farming, Snohomish County is no slouch when it comes to the raising of chickens, ducks, and geese.

The ensuing carnage is apparently impressive. Some birds “looked like they were attacked by vampires.” A group of African Geese were apparently formidable enough to chase off a force of minks estimated at between 30 and 100 individuals. The minks also attacked a dog, and ate 50 pounds of bird seed. In one case, the minks slaughtered half the birds on a farm.

In spite of this, some animal rights activists consider the entire incident a success! They say whatever happens to these creatures, it’s better than being raised, fed regularly, and killed for their pelts. They say this proves that farm raised minks can survive in the wild. Yeah sure, I guess if they have pre-captured food it works out fine.

Fuzzy Reality

In Iraq, we have over 280 dead American soldiers. At the current rate, we could be talking about the grizzly spectacle of a “300 Casualties Special” on whichever news show has the guts to be so tacky by the end of September. This figure does not include British casualties, the people killed in the UN blast, journalists, humanitarian aid workers, or Iraqi civilians. Things have gotten to the point that the United States has admitted that just maybe the time has come for the United Nations to get involved. We might even let France get involved.

We have $1.7 Billion (with a B) and counting in assorted Iraq related contracts to Halliburton. You remember Halliburton, right? That little oil services company Vice President Dick Cheney used to be the CEO of? Bechtel, a little engineering company Caspar Weinberger and George Shultz have been associated with, stands to earn another cool Billion in Iraq.

Speaking of money and Iraq, depending which source you like, it might cost $1 Billion a day to continue occupation of — oops, I mean rebuilding — Iraq. Or it might take $1 Billion a week, a figure that at least is close to Pentagon estimates of $4 Billion a month. Alternatively, the whole job might take another $11-15 Billion. People actually in Iraq seem to think this estimate is downright modest, suggesting it will take “tens of billions” to properly do the job. It seems like it might be more efficient to pick numbers out of a hat. The idea of making Iraq pay these expenses with oil proceeds is sounding more ludicrous by the day.

Both the Bush Administration and the Blair Administration in Britain are having to answer tough questions about how they got us into this mess. Both men may yet be punished in the voting booth.

On the National front, we have a potpourri of interesting economic news. The United States buget deficit has reached such proportions that even the IMF is concerned, saying that the people in charge are too optimistic and don’t have a plan. Granted, the IMF is a big fan of “fiscal austerity,” high taxes, and devalued currencies, but the actual criticisms are valid and undenyable. Some armchair economists insist that we have to make a choice between deficit spending and job creation, yet somehow we managed to create lots of jobs and eliminate the budget deficit in the 90s. As if that isn’t bad enough, it turns out that most of the current actual growth in the American economy can be attributed to defense spending — and it isn’t resulting in job creation. Hmm, at least defense spending in the Cold War put people to work. Are we now selling $600 toilet seats to Iraq? Oh, but wait, one theory posits that the reason new jobs aren’t happening has nothing to do with manufacturing jobs moving to foreign nations (try saying that with a straight face while looking at this), but is rather because us darned Americans are so efficient.

If it weren’t for the lives and money at stake, it would be enough to make you give up trying to understand it.

Makin’ Copies

Today, I happened to see an interview with the CEO of Macrovision. Macrovision is a company that makes the anti-piracy technology you find in DVDs, DVD players, Cable Boxes, Videotapes, and the like. They are the reason you can no longer tape something on Pay Per View to watch later. The CEO cited estimates that the home video industry loses almost $1 Billion each year. He also said that 25% of people responding to their poll said they had tried to copy pre-recorded videos in the last year.

It’s a little harder to copy videotapes and DVDs than it is to copy CDs. A CD can be copied with the tape recorder already in your stereo in as much time as it takes to play the disk, or converted to MP3 tracks on your computer with software you probably already have in even less time. Furthermore, if you own the CD, it is perfectly legal for you to do so. It falls under “fair use.” This has not stopped the music industry from attempting to make such copying impossible. Such attempts have note been well received, and in some cases not very sucessful. The courts have upheld the idea that it is perfectly justified to make a backup of a CD, or a tape for in your car, etc.. Lending this backup temporarily to a friend is a grey area that is unlikely to get you into trouble. Making such tapes for everyone in the neighborhood, or allowing the MP3s you made freely available for download is not, and the RIAA is trying desperately to clamp down on the latter. The movie industry would prefer that the issue of online movie sharing not start. They have the undenyable advantage that, frankly, video data is big. It takes a long time and a big pipe to send a movie over the internet.

All of my discussion thus far has concerned a population called the “casual pirate.” They make copies of things they do not legitimately own for themselves (and maybe some close friends) for personal enjoyment. Maybe because they can’t afford the real thing, or don’t think it’s worth the money; maybe because they can’t find the real thing available legitimately; maybe to complete a collection; in some rare cases, maybe for the challenge of breaking copy protection. All but the last group are effectively thwarted by the most simple of copy protection: make it moderately difficult or complicated, and they move on. Macrovision’s data seems to suggest that half these casual pirates would otherwise rent the videos in question, and almost a third would buy some of them.

Far more dangerous to the software, music, and movie industries is the professional pirate. He makes hundreds or thousands of illegal counterfeit copies and sells them perhaps below retail for a very large profit. This is a very big industry, and it should not shock you that organized crime might be involved. These pirates are not detered by a little bit of copy-protection.

Since circumstances force the movie, music, and software industries to rely on law enforcement personel for the lion’s share of stopping professional pirates, they have no choice but to content themselves with the only small by comparison problem of the casual pirate. This is where Digital Rights Management (DRM) comes into play. The schemes vary wildly in their design and implementation. The bottom line is that the copyright holder wants users to pay for product.

On the surface this is disarmingly fair. Unfortunately, the public has come to expect quality for its entertainment dollar. We are tired of paying $17.98 for an album that turns out to have 2 or 3 good songs and 10 lousy ones. We are tired of spending a lot of money at the movie theatre, when with a little patience we can buy the DVD, watch it on our own sofa, drink our choice of beverage, eat our choice of snack, stop the show to use the bathroom, and we don’t even need to hire a babysitter. We are tired of overhyped films with tired plots, even when the cinematography and special effects are lovely. Fortunately, the movie studios in particular have discovered that there are limits to what audiences will tolerate. They have furthermore discovered that timely, well priced DVDs have kept casual piracy to a minimum.

Want to stop piracy? Really? Give the consumer something quality at a reasonable price.