Continuous Productivity

Alcohol is Inelastic!

Why is it so difficult for many politicians to grasp the concept of elasticity? In London, some politicians believe that putting a minimum on the price of alcohol will lead to a reduction in the consumption of alcohol:

Sir Liam estimated that the pricing minimums would save more than 3,000 lives and result in 100,000 fewer hospital admissions per year.

The reality, which should be very clear with just a bit of intuition and common sense, is that consumers of alcohol do not adjust drinking down or up based on price. I don't believe it is completely inelastic, but nominal price floors and ceilings will only shift demand within those floors and ceilings.

America Leads in Bankruptcy

Very good article by Megan McArdle explaining how the generous American bankruptcy laws actually facilitate risk-taking, entrepreneurship, and innovation:

Our leniency toward those with unsustainable debts helps not only profligate debtors, but the rest of us as well. Less onerous bankruptcy procedures boost rates of entrepreneurship: reduce the cost of failure, and people become more willing to take risks. America’s business environment is much more dynamic than that of Europe or Japan, for many reasons—and our generosity to capitalism’s losers is one of them.

The issue, as is often the case, is the perception of the general public versus what benefits society as a whole:

Americans’ public attitude toward the bankrupt, however, is not nearly as generous as our law. Every move to make things easier for debtors meets with fierce resistance, not merely from creditors, but from ordinary people who are making payments on time. As this article went to press, the Senate was scrambling to find a compromise on a long-stalled House proposal that would allow bankruptcy judges to reduce the principal of home loans where the value of the property has fallen below the mortgage’s outstanding balance. Known as a “cramdown,” the idea was popular with most congressional Democrats, but apparently not with the voting public, which was telling pollsters in ever higher numbers that they thought the whole housing-bailout package was unfair.

And isn’t it? Most people didn’t take out giant loans with tiny down payments or do repeated cash-out refinancings. Yet the cramdown plan would make the sober, steady majority foot the bill for other people’s mistakes. First they would pay as taxpayers by helping to subsidize troubled loans. Then, the next time they needed a mortgage, they’d be charged a higher interest rate to compensate for the risk that they might declare bankruptcy and ask a judge to cram down their loan. And maybe they’d have to pay a third time, again as taxpayers, by bailing out banks that got too many of their loans crammed down. Meanwhile, the guy down the street who took out a second mortgage he couldn’t afford, to remodel, would be sitting pretty in his $60,000 kitchen.

It isn’t fair. But by the time someone is in bankruptcy, the time for fairness is already long past. Bankruptcy is the legal recognition that someone lacks the resources to meet financial obligations. Our system works so well precisely because it mostly sets aside our instinct for just deserts, and instead focuses on minimizing the costs to everyone. It lays out clear and predictable rules for lenders and borrowers, so that they can plan for disaster, and escape as quickly as possible if it arrives. Still, it’s plain as day that, in the current crisis, a whole lot of people are getting help they haven’t earned. As a result, commentators, academics, and legislators presiding over hearings have diverted much time and energy away from hashing out the ugly details of rescue efforts and toward making the one point on which we can all agree: these relief measures don’t seem fair.

McArdle goes on to explain why being harder on both companies and individuals when they get into debt they can't afford is actually worse on society:

Let’s start with the corporate side. Receivership, even as practiced in a relatively forgiving country like Britain, often results in liquidation, not reorganization. Sudden changes of the entire management are hard enough in normal times, but when they take place in bankruptcy, the difficulties are multiplied. Very few people want to go to work for a company that may be terminal, particularly if a tightfisted receiver refuses to pay a premium for their efforts.

Liquidations are very costly. Workers get fired, of course; suppliers lose business; local governments lose tax revenue. But they’re costly even for creditors. Picture what would happen if a receiver shut down GM’s assembly lines until they could be sold. The workers would scatter, and with them, painstakingly accumulated human capital. The value of the inventory would plummet. Who wants to buy a car with no warranty and no pipeline for replacement parts? The residual value that GM has built up over decades in marques like Cadillac would vanish. Thus, creditors are often better off accepting partial debt payments from a going concern than selling off the assets piecemeal.

But if corporate liquidation, Euro-pean-style, is so punitive, why does America encourage individuals to liquidate—letting them trade the assets they have on hand for a full discharge—rather than making them work off as much of their debt as possible? In theory, making bankruptcy harder should make us all better off: by discouraging people from taking on too much debt, by paying creditors as much as possible, and by delivering a little just retribution to debtors for their profligacy.

That was the reasoning behind the 2005 bankruptcy reform. Although filings spiked before the law took effect, immediately thereafter they fell off a cliff. In 2006, just 598,000 people filed for bankruptcy, the fewest since Ronald Reagan was president. Filings have increased since but are still well below the rates that prevailed in the relatively sunny economic climate of 2004.

Harsher bankruptcy rules are seemingly doing what we wanted them to do: discouraging excessive risk taking. The question, though, is Which risks?

Look at entrepreneurs. All of the business literature indicates that starting a business is a phenomenally stupid thing to do. Most new businesses fail, and not simply because most would-be entrepreneurs are actually no-hopers. Even people who have founded successful companies in the past still have a 70 percent chance of failing. All those business failures are costly—but the successes are the difference between us and Tanzania. We want people to take these kinds of risks, even if that means we write off a lot of bad debt.

Tougher bankruptcy laws don’t necessarily curb the kind of behavior we want to discourage: borrowing money you have no way to repay, in order to buy unnecessary consumer goods. The amount that households put on their credit cards didn’t fall after the 2005 reform; over the next two years, it rose 12 percent. According to Michelle J. White, an economist at the University of California at San Diego, many bankrupts are what economists call hyperbolic discounters—people who pay a lot of attention to current pleasures, and very little to future costs. That’s why a person’s debt, not unemployment or divorce, may be the best predictor of bankruptcy.

If you’re the kind of person who buys now and worries later, the idea that government is making your inevitable bankruptcy filing slightly more annoying won’t discourage you. Actually, a higher hurdle to bankruptcy will make things worse, because banks will offer to lend you more money if getting the debt discharged is harder for you—money that you will happily, and irresponsibly, borrow and spend. The people who are most likely to be deterred from borrowing are the people who are taking the rationally contemplated risk of starting a company or buying their first home.

Great stuff - read the whole thing.

Geitner Plan Explained

One of the best explanations of the government involvement in attempting to stabilize the economy:

Q: What is the Geithner Plan?

A: The Geithner Plan is a trillion-dollar operation by which the U.S. acts as the world's largest hedge fund investor, committing its money to funds to buy up risky and distressed but probably fundamentally undervalued assets and, as patient capital, holding them either until maturity or until markets recover so that risk discounts are normal and it can sell them off--in either case at an immense profit.

Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn't make back its money?

A: Then we have worse things to worry about than government losses on TARP-program money--for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.

Q: Where does the trillion dollars come from?

A: $150 billion comes from the TARP in the form of equity, $820 billion from the FDIC in the form of debt, and $30 billion from the hedge fund and pension fund managers who will be hired to make the investments and run the program's operations.

Q: Why is the government making hedge and pension fund managers kick in $30 billion?

A: So that they have skin in the game, and so do not take excessive risks with the taxpayers' money because their own money is on the line as well.

Q: Why then should hedge and pension fund managers agree to run this?

A: Because they stand to make a fortune when markets recover or when the acquired toxic assets are held to maturity: they make the full equity returns on their $30 billion invested--which is leveraged up to $1 trillion with government money.

Q: Why isn't this just a massive giveaway to yet another set of financiers?

A: The private managers put in $30 billion, but the Treasury puts in $150 billion--and so has 5/6 of the equity. When the private managers make $1, the Treasury makes $5. If we were investing in a normal hedge fund, we would have to pay the managers 2% of the capital and 20% of the profits every year; the Treasury is only paying 0% of the capital value and 17% of the profits every year.

Q: Why do we think that the government will get value from its hiring these hedge and pension fund managers to operate this program?

A: They do get 17% of the equity return. 17% of the return on equity on a $1 trillion portfolio that is leveraged 5-1 is incentive.

Q: So the Treasury is doing this to make money?

A: No: making money is a sidelight. The Treasury is doing this to reduce unemployment.

Q: How does having the U.S. government invest $1 trillion in the world's largest hedge fund operations reduce unemployment?

A: At the moment, those businesses that ought to be expanding and hiring cannot profitably expand and hire because the terms on which they can finance expansion are so lousy. The terms on which they can finance expansion are so lazy because existing financial asset prices are so low. Existing financial asset prices are so low because risk and information discounts have soared. Risk and information discounts have collapsed because the supply of assets is high and the tolerance of financial intermediaries for holding assets that are risky or that might have information-revelation problems are low.

Q: So?

A: So if we are going to boost asset prices to levels at which those firms that ought to be expanding can get finance, we are going to have to shrink the supply of risky assets that our private-sector financial intermediaries have to hold. The government buys up $1 trillion of financial assets, and lo and behold the private sector has to hold $1 trillion less of risky and information-impacted assets. Their price goes up. Supply and demand.

Q: And firms that ought to be expanding can then get financing on good terms again, and so they hire, and unemployment drops?

A: No. Our guess is that we would need to take $4 trillion out of the market and off the supply that private financial intermediaries must hold in order to move financial asset prices to where they need to be in order to unfreeze credit markets, and make it profitable for those businesses that should be hiring and expanding to actually hire and expand.

Q: Oh.

A: But all is not lost. This is not all the administration is doing. This plan consumes $150 billion of second-tranche TARP money and leverages it to take $1 trillion in risky assets off the private sector's books. And the Federal Reserve is taking an additional $1 trillion of risky debt off the private sector's books and replacing it with cash through its program of quantitative easing. And there is the fiscal boost program. And there is a potential second-round stimulus in September. And there is still $200 billion more left in the TARP to be used in other ways.

Think of it this way: the Fed's and the Treasury's announcements in the past week are what we think will be half of what we need to do the job. And if it turns out that we are right, more programs and plans will be on the way.

Q: This sounds very different from the headline of the Andrews, Dash, and Bowley article in the New York Times this morning: "Toxic Asset Plan Foresees Big Subsidies for Investors."

A: You are surprised, after the past decade, to see a New York Times story with a misleading headline?

Q: No.

A: The plan I have just described to you is the plan that was described to Andrews, Dash, and Bowley. They write of "coax[ing] investors to form partnerships with the government" and "taxpayers... would pay for the bulk of the purchases..."--that's the $30 billion from the private managers and the $150 billion from the TARP that makes up the equity tranche of the program. They write of "the Federal Deposit Insurance Corporation will set up special-purpose investment partnerships and lend about 85 percent of the money..."--that's the debt slice of the program. They write that "the government will provide the overwhelming bulk of the money — possibly more than 95 percent..."--that is true, but they don't say that the government gets 80% of the equity profits and what it is owed the FDIC on the debt tranche. That what Andrews, Dash, and Bowley say sounds different is a big problem: they did not explain the plan very well. Deborah Solomon in the Wall Street Journal does, I think, much better. David Cho in tomorrow morning's Washington Post is in the middle.

History is Important, But Can it Solve Anything?

Things are somewhat similar to the events that led to the great depression. A must-read historical piece by Greg Mankiw:

From 1930 to 1933, more than 9,000 banks were shuttered, imposing losses on depositors and shareholders of about $2.5 billion. As a share of the economy, that would be the equivalent of $340 billion today.

The banking panics put downward pressure on economic activity in two ways. First, they put fear into the hearts of depositors. Many people concluded that cash in their mattresses was wiser than accounts at local banks.

As they withdrew their funds, the banking system’s normal lending and money creation went into reverse. The money supply collapsed, resulting in a 24 percent drop in the consumer price index from 1929 to 1933. This deflation pushed up the real burden of households’ debts.

Second, the disappearance of so many banks made credit hard to come by. Small businesses often rely on established relationships with local bankers when they need loans, either to tide them over in tough times or for business expansion. With so many of those relationships interrupted at the same time, the economy’s ability to channel financial resources toward their best use was seriously impaired.

Together, these forces proved cataclysmic. Unemployment, which had been 3 percent in 1929, rose to 25 percent in 1933. Even during the worst recession since then, in 1982, the United States economy did not experience half that level of unemployment.

Additionally, it seems as if we just can't learn from history. Not because we, as a society, don't try, but rather because we just don't have the intellectual capacity:

What’s next? Perhaps the most troubling study of the 1930s economy was written in 1988 by the economists Kathryn Dominguez, Ray Fair and Matthew Shapiro; it was called “Forecasting the Depression: Harvard Versus Yale.” (Mr. Fair is an economics professor at Yale; Ms. Dominguez and Mr. Shapiro are at the University of Michigan.)

The three researchers show that the leading economists at the time, at competing forecasting services run by Harvard and Yale, were caught completely by surprise by the severity and length of the Great Depression. What’s worse, despite many advances in the tools of economic analysis, modern economists armed with the data from the time would not have forecast much better. In other words, even if another Depression were around the corner, you shouldn’t expect much advance warning from the economics profession.

What is Elitism?

A key argument for Palin, in essence, is this: Washington and Wall Street are serving their own interests rather than those of the broad whole of the country, and the moment requires a vice president who will, Cincinnatus-like, help a new president come to the rescue. The problem with the argument is that Cincinnatus knew things. Palin sometimes seems an odd combination of Chauncey Gardiner from "Being There" and Marge from "Fargo."

Is this an elitist point of view? Perhaps, though it seems only reasonable and patriotic to hold candidates for high office to high standards. Elitism in this sense is not about educational or class credentials, not about where you went to school or whether you use "summer" as a verb. It is, rather, about the pursuit of excellence no matter where you started out in life. Jackson, Lincoln, Truman, Eisenhower, Johnson, Nixon, Ford, Carter, Reagan and Clinton were born to ordinary families, but they spent their lives doing extraordinary things, demonstrating an interest in, and a curiosity about, the world around them. This is much less evident in Palin's case.

It's a shame that his opponents frame Barack's "pursuit of excellence" as "elitist".

Election Math

An excellent analysis by the University of Virginia's Larry J. Sabato:

On the morning after Pennsylvania, she insisted that she had taken a narrow popular-vote lead, about 15.12 million to nearly 15 million for Obama. But this is classic "new math", where the numerical answer obtained is often less important than the agile mental gymnastics used to get there.

Clinton's total relies on two very dubious assumptions. First, one must incorporate the primary results from Florida and Michigan, two January contests excluded by the Democratic National Committee for violating the scheduling rules set by the party. This is no minor sum of votes - 2,344,318, to be exact.

But no even-handed person would contend that Michigan, whose primary occurred on 15 January, should be part of the equation. Barack Obama's name was not even on the ballot.

The vote total cited by Clinton conveniently excludes three caucus states won by Obama, in Iowa, Maine, and Washington. (Nevada, won by Clinton, is also left out of the tally.) No-one knows the exact number of votes cast for each candidate in these four states since the state parties, by tradition, refuse to release the data.

Eliminating Michigan, the Obama-Clinton match-up shows an Obama edge of a couple hundred thousand votes. Striking Florida brings it to about a half-million-vote Obama plurality. And the unknown caucus results would add at least 100,000 to his lead.

I would suggest reading the entire piece. The explanation he provides is both concise and very informative.

Bank Mole

I was unaware of this, but apparently the current international investigation into the Liechtenstein tax haven fiasco was initiated by a mole that used to work at the LGT Bank:

Authorities in Liechtenstein have condemned the purchase of what it says is confidential bank data.   

LGT Treuhand, part controlled by the principality's royal family, claims the list of 1,400 customer names are contained on DVDs that were copied by Mr Kieber in 2002.

So, it seems that countries such as Germany and the UK paid upwards of $7.7M to the mole for confidential bank data that he had copied onto DVD's while he was an employee at the Liechtenstein bank.  I am sure this has sent a shudder up and down the spines of not only many wealthy folks that use international banks, but also entire countries that market these banks as the utmost in financial privacy. 

Finally, the interesting and downright scary part about paying a mole that illegally (or at least unethically) copied client data onto a disk is that these countries are (un)intentionally creating a market for similar transgressions.  That is, any bank employee that wants to make a quick million (or five) can just copy data, offer it to countries, and get a new identity.  It's a nice gig with limited downside. 

Andreessen AND Obama

It has been a while since Marc Andreessen has posted.  So, this morning when my feeds indicated that my Andreessen folder had a new post, I clicked right away.

Marc was kind enough to recap a meeting he had with Barack Obama prior to the start of the campaign season in early 2007.  He recaps the meeting and his perceptions of Senator Obama.  Again, anyone who knows me well, knows how I feel about each of these gentlemen- as inspirations, as leaders, and most importantly as men that break molds.  So, I was excited as I have been in a while to read Marc's perception of Senator Obama.  The salient points:

First, this is a normal guy.

I've spent time with a lot of politicians in the last 15 years.  Most of them talk at you.  Listening is not their strong suit -- in fact, many of them aren't even very good at faking it.

Senator Obama, in contrast, comes across as a normal human being, with a normal interaction style, and a normal level of interest in the people he's with and the world around him.

Normal and Smart:

Second, this is a smart guy.

I bring this up for two reasons. One, Senator Obama's political opponents tend to try to paint him as some kind of lightweight, which he most definitely is not. Two, I think he's at or near the top of the scale of intelligence of anyone in political life today.

You can see how smart he is in his background -- for example, lecturer in constitutional law at University of Chicago; before that, president of the Harvard Law Review.

But it's also apparent when you interact with him that you're dealing with one of the intellectually smartest national politicians in recent times, at least since Bill Clinton. He's crisp, lucid, analytical, and clearly assimilates and synthesizes a very large amount of information -- smart.

Please go read the entire post, it will be well worth your time.

Prison Statistics

I am quickly becoming a huge fan of The Pew Research Center.  The center recently released a study regarding the number of jailed in the US.  Basically, 1% of adult Americans are in jail.  The interesting point is not that 2.3 million Americans are in jail, but how that compares to other countries and the demographic breakdown of jailed Americans.  Some facts of note from the report:

• USA: 750 prisoners per 100,000 people
• South Africa: 341 prisoners per 100,000 people
• Iran: 222 prisoners per 100,000 people
• China: 119 prisoners per 100,000 people

I haven't done any additional research on why our imprisoned rates are so high.  My initial guess would be that the "barriers to entry" (for lack of a better term) are probably pretty low.  I'd imagine crimes like marijuana possession, drug trafficking, etc bloat our prison numbers. 

More interesting facts about our imprisoned:

• Last year states spent $49 billion on corrections
• 1 in 30 men between the ages of 20-34 are in prison
• 1 in 9 black men between the ages of 20-34 are in prison
• Men are 13 times more likely to be incarcerated than women

Religion as Excuse or Ignorance?

I referenced the story of Pervez Kambaksh in a previous post.  Well, the good news is he had a trial before he was sentenced to death.  The not-so-good news: his trial lasted four minutes.  It's very disheartening to see religion used as an excuse time and time again to extinguish free thought:

Mr Kambaksh says he merely downloaded from an Iranian website an article which questioned why polygamy was all right for men but not women.

Some days later he was told the Afghan intelligence services wanted to see him.

In the police station he was put under arrest, he said, and told it was for his own protection as otherwise he might be killed.

After a month in jail Mr Kambaksh was charged in court with blasphemy and other crimes against Islam.

In late January he expected the trial to start but instead was taken into the courtroom just before it was due to shut.

He says the judges and prosecutor repeated some details of the case and then declared him guilty and announced the sentence was death.

"The judges had made up their mind about the case without me," he told the Independent.

"The way they talked to me, looked at me, was the way they look at a condemned man.

"I wanted to say: 'This is wrong, please listen to me,' but I was given no chance to explain."

The good news is that the case is scheduled for appeal and President Karzai himself would have to approve any death sentence before it is carried out.

Country as Business

An interesting article passed along by good friend, Dipen Desai, regarding the expansion aspirations of Dubai World.  Dubai has developed a very unique business model which has led to substantial growth in the past decade.  The country is now investing in and advising other countries hoping to replicate the model:

So while petroleum-rich Persian Gulf states like Saudi Arabia, Kuwait, and Abu Dhabi acquire chunks of companies like Citigroup (C, Fortune 500), Dubai is on an international building spree. And it's not just hotels and tall buildings - the emirate's companies are selling the developing world nothing less than promises of Dubai-style economic success. Its developers are building a $27 billion city in Saudi Arabia, $20 billion worth of luxury projects in Algeria, resorts in Morocco, housing in Vietnam, ports in Indonesia, free-trade zones in Senegal, and game parks in South Africa. "Dubai is seemingly so successful that it has become a brand to these countries," says Christopher Davidson, a professor at Durham University in England who just published his second book on the United Arab Emirates. "Governments want to have a little bit of what Dubai's been able to do at home, and Dubai needs to find places to keep growing."

The question, of course, is whether these countries can replicate the model without Dubai's deep sovereign pockets.

Castro Resigns

"I neither will aspire to, nor will I accept, the position of president of the council of state and commander in chief," he told the newspaper, Granma.

The 81-year-old handed over power temporarily to his brother, Raul, in July 2006 when he underwent surgery.

It will be interesting to see what sort of interactions the EU and US will have with the island going forward. 

Conspiracy Ammo

An interesting "transcript" was released today alleging a conversation between Lee Harvey Oswald and Jack Ruby:

The talk supposedly took place on Oct. 4, 1963, at the Carousel Club, a Dallas nightclub.

"You said the boys in Chicago want to get rid of the Attorney General?" Oswald asks.

"Yes, but it can't be done. ... It would get the Feds into everything," Ruby says.

"There is a way to get rid of him without killing him." Oswald responds. He eventually adds: "I can shoot his brother."

That's when Ruby tells Oswald that killing the president "wouldn't be patriotic."

Later, Oswald asks where the money for the hit is coming from, and Ruby holds up his hand and says: "You've heard of the black hand, the black hand of death?"

"The Mafia," Oswald says.

"Yes, the Mafia," Ruby responds.

Of course the veracity, as always, remains in doubt:

Although the documents have not been reviewed by experts, and he wouldn't speculate on the veracity of the transcript, Watkins acknowledged that its release "will open up a debate over whether or not if there was a conspiracy to assassinate the president."

The Warren Commission investigated Kennedy's assassination and concluded that Oswald acted alone. It looked at a transcript similar to this one as part of its investigation and ultimately decided it was not credible.

Terri Moore, Watkin's top assistant, said she thinks the conversation is fiction.

"It's a fake. Criminals don't talk that way," Moore said.

Veganism Beckons

The U.S. Department of Agriculture announced Sunday that a California meatpacking company had launched the recall of 135 million pounds of beef -- the largest meat recall in U.S. history -- following questions about the company's treatment of cattle that were slaughtered even though they could not stand up.

The recall by the Hallmark/Westland Meat Packing Co., in Chino, Calif., covers meat produced since February 2006. USDA officials said that, given the nature of ground beef production and its shelf life, much of the recalled meat has likely already been consumed. Federal authorities said they don't have solid evidence of illnesses linked to the meat.

I usually stop consuming beef when I read about meat recalls, mad-cow, or E. coli.  It's most likely a moot gesture, but it does give me a false sense of control.  The above bold statement is a stark reminder that most recalls of this nature happen after the fact. 

It's also disturburing to note, as this article points out,  that Hallmark/Westland sold over 37 million pounds of beef to federally run nutrition programs such as the national school lunch program.

Valentine and Vice

The always wonderful Marginal Revolution pointed me to this CNN article:

Because of the ban on red roses, a black market has flowered ahead of Valentine's Day. Roses that normally go for five Saudi riyal ($1.30) fetch up to 30 riyal ($8) on February 14, the Saudi Gazette said.

"Sometimes we deliver the bouquets in the middle of the night or early morning, to avoid suspicion," one florist told the paper.

In the words of MR, markets in everything, indeed.

Well It's Official: Clinton or Obama vs McCain

Mitt Romney, the former CEO, has bowed out of the presidential race.  So, it would seem that at this point, it is down to the Democratic nominee versus McCain in November.

I am still not convinced that there isn't a dark horse lurking in the wings (no, I don't mean this guy) by the name of Bloomberg.  It almost seems too perfect: the nominee that no Republican wants to see as president, versus a minority male, and/or a female.  I have a distinct feeling that Mayor Bloomberg has been paying special attention to how all of this has played out and his exploratory committee will announce something real soon.  He has the financial clout, the backing of the business world, and renounced his party ties for just this moment.  It's going to be exciting to see what happens.

On Another McCain Note

You'll find me pointing to Andreessen a lot on this blog.  Not only because he is a fellow UofI alum, or that he is one of the people responsible for the greatest technological revolution of our time, or that he is a personal inspiration, but because I happen to think his posts rock.  Case in point.

The Amazing McCain Comeback

I have been fascinated by the comeback of John McCain the last 1.5 months (and as a sidebar, the lack of a real Guiliani campaign).  I am very surprised that it has not been well-chronicled here in the states, but the BBC takes a crack it at.  I was astonished to learn that as late as December 9th, McCain was supported by less than 12% of Republicans. 

I have always been fascinated by McCain the man, but there is a downside to his relentless pursuit of the Republican nomination:

To keep his campaign going, Mr McCain had to rely on many of his key aides working for free, and a group of volunteer fundraisers to appeal for cash.

His internet fundraising director, Rebecca Donatelli, said: "We were down to nobody. To nothing. But somehow it was OK because Senator McCain was in the room."

But Mr McCain managed to secure a $3m loan from his local bank in Washington, Fidelity Trust, secured against future campaign revenues.

According to newspaper reports, the bank also took out an insurance policy against his life to make sure they would be repaid if he did not survive the campaign.

It is surely a great comeback, but I wonder how the lack of fund raising will play out against either the Clinton or Obama financial juggernaut.

Some Things Stay the Same

A very sad ruling out of Afghanistan today.  A young journalist was arrested and sentenced to death for blasphemy.  What was he arrested for?

He was arrested in 2007 after downloading material relating to the role of women in Islamic societies.

I guess thinking freely is still a blasphemous activity.  Sad.

Free Trade Republicans

Excellent post by Andreessen.  Read the whole thing.

Another Surprise - People Should be Able to Change Their Minds

Thanks to Casnocha (another must read), I was able to find this Washington Monthly piece.  In summation, it's ridiculous to think that politicians (just like all people) shouldn't be able to change their minds. 

Surprise - Laws Can Have Negative Consequences

In news that shouldn't surprise anyone, politicians sometimes enact laws that have negative consequences.   Levitt and Dubner are at it again in this week's New York Times Magazine analyzing three distinct laws and how they actually hurt the parties they are intended to help. 

They begin by discussing the American Disabilities Act and how it actually seems to hurt the disabled in many circumstances:

A few months ago, a prospective patient called the office of Andrew Brooks, a top-ranked orthopedic surgeon in Los Angeles. She was having serious knee trouble, and she was also deaf. She wanted to know if her deafness posed a problem for Brooks. He had his assistant relay a message: no, of course not; he could easily discuss her situation using knee models, anatomical charts and written notes.

The woman later called again to say she would rather have a sign-language interpreter. Fine, Brooks said, and asked his assistant to make the arrangements. As it turned out, an interpreter would cost $120 an hour, with a two-hour minimum, and the expense wasn’t covered by insurance. Brooks didn’t think it made sense for him to pay. That would mean laying out $240 to conduct an exam for which the woman’s insurance company would pay him $58 — a loss of more than $180 even before accounting for taxes and overhead.

So Brooks suggested to the patient that they make do without the interpreter. That’s when she told him that the Americans With Disabilities Act (A.D.A.) allowed a patient to choose the mode of interpretation, at the physician’s expense. Brooks, flabbergasted, researched the law and found that he was indeed obliged to do as the patient asked — unless, that is, he wanted to invite a lawsuit that he would probably lose.

If he ultimately operated on the woman’s knee, Brooks would be paid roughly $1,200. But he would also then need to see her for eight follow-up visits, presumably with the $240 interpreter each time. By the end of the patient’s treatment, Brooks would be solidly in the red.

He went ahead and examined the woman, paying the interpreter out of his pocket. As it turned out, she didn’t need surgery; her knee could be treated through physical therapy. This was a fortunate outcome for everyone involved — except, perhaps, for the physical therapist who would have to pay the interpreter’s bills.

Brooks told several colleagues and doctor friends about his deaf patient. “They all said, ‘If I ever get a call from someone like that, I’ll never see her,’ ” he says. This led him to wonder if the A.D.A. had a dark side. “It’s got to be widely pervasive and probably not talked about, because doctors are just getting squeezed further and further. This kind of patient will end up getting passed on and passed on, getting the runaround, not understanding why she’s not getting good care.

And "surprisingly", the ADA led to a drop in the employment of disabled workers:

Their conclusion was rather startling and makes Andrew Brooks’s hunch ring true. Acemoglu and Angrist found that when the A.D.A. was enacted in 1992, it led to a sharp drop in the employment of disabled workers. How could this be? Employers, concerned that they wouldn’t be able to discipline or fire disabled workers who happened to be incompetent, apparently avoided hiring them in the first place.

This has been going on for a long time.  Read the entire piece. 

Daddy's Getting Old

Via Chicago-based RealClearPolitics.com, some very interesting information that is oftentimes forgotten during election years:

Our children face a future of rising taxes, squeezed -- and perhaps falling -- public services, and aging -- perhaps deteriorating -- public infrastructure (roads, sewers, transit systems). Today's young workers and children are about to be engulfed by a massive income transfer from young to old that will perversely make it harder for them to afford their own children.

It is an unwritten rule in politics that one must pander to what the masses want to hear rather than discuss or effectuate real change.  As such it is not surprising that:

No major candidate of either party proposes to do much about [the aforementioned problems] even though the facts are well-known.

Spending for Social Security, Medicare and Medicaid -- three programs that go overwhelmingly to older Americans -- already represents more than 40 percent of federal spending. A new report from the Congressional Budget Office projects these programs could equal about 70 percent of the present budget by 2030. Without implausibly large budget deficits, the only way to preserve most other government programs would be huge tax increases (about 40 percent from today's levels). Avoiding the tax increases would require draconian cuts in other programs (about 60 percent). Workers and young families, not retirees, would bear the brunt of either higher taxes or degraded public services.

The numbers mentioned above, at least to this observer, are utterly shocking.  70% of our budget will go on spending for the dirty three.  40% tax increases or 60% cuts in other programs just to keep the dirty three breathing. 

As much as I loathe the Bush administration, I have to admit they have at least attempted (or least embodied the perception) to address these prickly problems.  Of course, like everything else the administration has attempted, it failed miserably.  I suppose they don't award brownie points for trying.

As a young American, one of the most disheartening aspects of how the dirty three were dealt with is that they were NOT dealt with:

Ideally, prospective retirees would have received several decades' warning; but we've delayed too long. We need to cut benefits for baby boomers and even some existing retirees. They are the source of mounting costs.

I understand, oftentimes procrastination is unavoidable and probably innate, but it certainly should not be in the milieu of our politics.  We, rightfully, expect more from our leaders and instead it seems that we are going to be left holding the bag because they were afraid to tell Daddy (baby boomers) about the bad report card.  Not only did they not tell Daddy, our politicians acted as if the problem didn't exist and would go away on its own.  Oh, and guess what, just when it is absolutely urgent to cut these benefits, the size of the boomers is going to double.  You don't need me to do the math of how vexing an economic problem this is. 

Complex Google

A well-written 6,026 word essay on Google at the New Yorker.  The first half of the essay describes Google's increased focus on Washington (by necessity):

The modest one-man operation in Washington has expanded considerably and now includes about thirty people, among them Robert Boorstin, a former speechwriter for President Clinton; Johanna Shelton, a former senior counsel to Representative John Dingell, chairman of the House Energy and Commerce Committee; and Pablo Chavez, a former chief counsel to John McCain. In October, 2006, the company established its own PAC, called NETPAC, and since then it has hired three outside firms to lobby on its behalf: the mostly Democratic Podesta Group; King & Spalding, where Google works with former Senators Connie Mack and Dan Coats, both Republicans; and Brownstein Hyatt Farber Schreck, which hired Makan Delrahim, the former Deputy Assistant Attorney General in the Bush Justice Department’s Antitrust Division.

“We’ve been under the radar, if you will, with government and certain industries,” David Drummond, a Google senior vice-president, observes. Drummond, who is based in Mountain View, oversees all the company’s legal affairs. “As we’ve grown, we’re engaging a lot more. We’ve had to put a lot more emphasis on engaging.” Google’s Washington office reports to both Drummond and Elliot Schrage, the vice-president for global communications and public affairs, who is also based in Mountain View, and one of its immediate tasks has been to address the privacy issues raised by the proposed acquisition of DoubleClick. “Privacy is an atomic bomb,” a Google executive who does not want to be identified says. “Our success is based on trust.”

The essay distinguishes itself from the usual monotony in the latter half.  I find the interactions between Brin/Page and Schmidt fascinating:

The youth of the founders (Brin is thirty-four and Page is thirty-five) leads to jokes that someone like Schmidt, who is fifty-two, was essential to manage Google. “It borders on insulting to say that Eric provides ‘adult supervision,’ ” Elliot Schrage says. “It is insulting to both.” Yet there are times when Schmidt does supervise. One day, I asked him how he felt about the U.S.A. Patriot Act, which gives the government broad powers—including wiretapping and reading e-mail—to investigate terrorist suspects. “I’m not a big fan,” Schmidt said. “I’m offering you my personal opinion as a citizen.”

Later, at a press lunch attended by the founders and Schmidt, I asked about Google’s position regarding the government’s use of the Patriot Act. “I’m not an expert on the Patriot Act,” Brin said. “But it’s certainly a long-standing issue prior to the Patriot Act—”

“Can I?” Schmidt interrupted. Not waiting for permission, he proceeded: “The best way to answer this question is to say it’s the law of the land and we have to follow it.”

“Or, in some cases, we fought it in court,” Brin said, referring to Google’s successful challenge of a Justice Department request, in January, 2006, to hand over search data to aid the Bush Administration’s defense of an Internet-pornography law. The company accused prosecutors of a “cavalier attitude” and said that the government was “uninformed” about how search engines work. Again, Schmidt interrupted, saying, “We fought it legally, and we followed the law, and we won in court.”

“Every once in a while he does this unintentional condescending thing, and he does it in public settings,” a Google executive says of Schmidt. On Tuesdays, Brin, Page, and Schmidt hold product-strategy meetings, which are dominated by engineers. I was permitted to attend one, on the condition that the product, and the engineers, not be identified, but the tenor of the meeting was clear enough: Page and Brin had wanted an upgrade of an existing product, and they were unhappy with what they were hearing from the engineers. At first, they were stonily silent, slid down in their chairs, and occasionally leaned over to whisper to each other. Schmidt began with technical questions, but then he switched roles and tried to draw out Page and Brin, saying, “Larry, say what’s really bugging you.”

Page said that the engineers were not ambitious enough. Brin agreed, and said that the proposals were “muddled” and too cautious.

“We wanted something big,” Page added. “Instead, you proposed something small. Why are you so resistant?”

The head of the engineering team said that the founders’ own proposed changes would be too costly in money, time, and engineering talent.

Schmidt—the only person at the meeting wearing a tie—tried to summarize their differences. He noted that Brin and Page wanted to start by deciding the outcome, while the product team focussed first on the process, and concluded that the engineering would prove too “disruptive” to achieve the goal.

“I’m just worried that we designed the wrong thing,” Brin said. “And you’re telling me you’re not designing the optimum system. I think that’s a mistake. . . . I’m trying to give you permission.”

The product team went on to make a slide presentation, but everyone there realized that the issues would not be resolved that day. Schmidt told the team to report back with a detailed design “that is responsive to Larry and Sergey’s criticism,” and to clarify “what it takes to build a good product,” and what it would cost in time and money. However, he balanced this with praise: “But this is very well done. I love it when people show me the flaws in our products.”

In meetings such as this, Page and Brin are like a tag team, taking turns as they chide employees for devising something that is merely a “cute” solution, not a fundamental one. Schmidt says, “They think about what should be, and they assume it is possible.” Brin and Page also introduce a measure of what Schmidt refers to, affectionately, as management “chaos.” Neither has an assistant. Executives check Google Calendar to learn if Brin or Page plans to attend a meeting. Sometimes, Schmidt says, the founders show up, unscheduled, for the wrong meeting. Sometimes they simply disappear—flying off on their Boeing, for instance, or indulging their newest sport, kite surfing.

I love to see the interaction between founders and management; between technologists and business people; between the young and the old. 

The concluding point is the most illumined and effective:

What sets Google apart, Schmidt told me in another conversation, is that although people like him always assumed that “Google would be an important company, the founders always assumed that Google would be a defining company.” He remembers a day in 2002 when he walked into Page’s office and Page started to show off a book scanner he had built. “What are you going to do with that, Larry?” Schmidt recalls asking. “We’re going to scan all the books in the world,” Page replied. Eventually, Google began to do just that.

It hits at the heart of, I think, what every entrepreneur wants.  Not to just build and "important company", but rather a "defining company".