Public Debt: January 2011

The Public Debt and GDP are shown above as of Friday, January 7, 2010. We are now well above the 100% level as we had predicted. It continues to grow unabated and despite the "predictions" from our economic engineers from Berkeley, Harvard, Princeton and the like, we keep sinking deeper.

This is a depiction of the growth we are having. We are flatlining at 10%+ annual growth in debt and from this base that is terrifying.

Despite all the complaining of SSI and the like that portion is growing slowly, it is the payments to unions and special interests which dominate the numbers as we see above.

Hopefully 2011 sees some improvement.

BP & Alaska: Loss of Production

BP has just announced a loss of its oil production in Alaska. The FT states:

Oil markets were braced on Monday for the impact of the loss of up to 15 per cent of US crude after a pipeline leak forced BP, the UK-based oil company, to shut down 95 per cent of production from North America’s biggest field...The development, at the Trans-Alaska Pipeline System that carries oil from the Prudhoe Bay field, comes as BP is still grappling with the fallout from the oil spill in the Gulf of Mexico. A prolonged shutdown would cut into BP’s output and could undermine earnings.

They continue:

The pipeline carried an average of 642,261 barrels per day in December, higher than the monthly average last year of 620,000 barrels...The Marine Terminal at Valdez has 18 storage tanks, with total capacity of more than 9m barrels. But only 14 of those tanks are in operation. On Sunday morning, Alyeska said they still held 35 per cent of their inventory, or about 2.5m barrels of oil. There is no significant storage on site to make up for a prolonged outage..

This will most likely send shakes throughout the US economy as well. One wonders what types have been managing BP.

The End of the Bookstore

Prof Becker at Chicago has posted an piece on the end of bookstores. He starts by saying:

The traditional bookstore is doomed by e-readers and online sales of hard copy books. I use the word “doomed” in the same sense that online digital sales of movies and music have doomed movie rental stores, movie theatres, and stores that sell albums of music. Doomed does not mean that these stores will quickly, or ever fully, disappear, but that they have received deadly blows from Internet competition.

I agree but I must add a comment on college text books.  These will keep the monopoly of the college book store going and it will continue to provide a heft income stream to those professors who produce the version after version of text books.

Let me look at a simple set of examples:

Calculus: You may just as easily get a 1930 copy of a calculus book off used book web site ABE since frankly not much has changed. In fact the book has fewer pictures if any and if often clear and to the point. Why spend $245 for a Calculus text, I picked the top one on Amazon. What in the good Lord's name is worth that much in a calculus book. In my opinion that is almost highway robbery if the price is truly what they say. Nothing has changed, it is all the same, and you would be better off with a half dozen used old books and comparing sections and methods of explanations, that is what real life is about.

French: Now I have a real issue here. This has not change much in a few hundred years. Same verbs, idioms, grammar, even the classic authors, and I read Le Monde each day on line! Why spend for beginning French $140 which is first on Amazon! There must be dozens of French books in every used books store and millions on ABE, actually 868,733, close.

Economics: Why not select witchcraft, but let's stay here. Not much has changed in fifty years with the intro course, same graphs, same arguments, and besides its usually knowing the political bent of the instructor rather than any facts in economics. Here on Amazon the top seller is $239. Now what do you get for that, I gather it is some later edition, and they just probably purged the stuff that was wrong last few times and included stuff that is most likely still speculative.

Now to engineering. Well, at the top schools you get handouts, and web based materials. The faculty I know are always at the edge and thus the students have no cost unless they decide to print it out. Now engineers become productive day one out of school, and the costs of books at the school bookstore can be de minimis. Does that say something.

Now back to Becker. The school bookstore does not seem to be going anywhere. It is a confiscatory monopoly for some. Remember that an author gets about 15% of the gross, so if your book is $250 then you get $32.50 each one sold. Sell 10,000 and you get $325,000 per year! That is another cost to the poor student and their family.

Perhaps the FTC may look at this some day, or Antitrust. But do not hold your breath. Becker may see the closing the Borders but the old college book store seems to be prospering beyond the wildest of dreams.

Yet as Posner just posted he states:

The question then becomes whether the loss of point-of-sale services that bookstores provide will hurt publishers (and therefore authors, whose prosperity is linked to that of publishers) more than it will help them by reducing their distribution costs. That too is doubtful. As technology continues its forward march, online booksellers will find it increasingly feasible to duplicate and indeed improve on the point-of-sale services that bookstores offer. Bookstores will decline, and perhaps vanish when the current older generation, consisting of people habituated to printed books (as to printed newspapers), dies off. Yet this may well represent genuine economic progress, just as department stores and supermarkets represent progress though they cause the demise of countless small retailers.

He reminds me of how thirty years ago when I tried to get Warner Cable into two way, we posed it as an electronic marketing and distribution channel. We saw two way interactive cable with our real time video on demand as a game changer. Yet we were too early. Yet we were right, it is a game changer, and it is a marketing and distribution channel change. 

She's Back! The Chinese Mother

The WSJ has an article written by Amy Chua in praise of her Chinese mothering. Now as I gather she is a Yale Law Professor. I once got a fellowship at Yale and drove to New Haven from Cambridge and never found Yale, well before GPS. I turned around and drove back to Cambridge. Best decision I ever made, although Yale has a club in New York and MIT I think meets under the El somewhere up town on rainy nights. So much for class.

Yet, as for mothers, one should ask Mrs. Feynman, Mrs. Wiener, Mrs. Von Neumann, Mrs. Einstein and the list goes on. Guilt works well also. But the hubris of having Chinese motherhood is hardly the only way to move civilization forward. I wonder how well Mrs. Mao did?

Chua states:

What Chinese parents understand is that nothing is fun until you're good at it. To get good at anything you have to work, and children on their own never want to work, which is why it is crucial to override their preferences. ... Western parents tend to give up. But if done properly, the Chinese strategy produces a virtuous circle. ... Once a child starts to excel at something—whether it's math, piano, pitching or ballet—he or she gets praise, admiration and satisfaction. This builds confidence and makes the once not-fun activity fun. This in turn makes it easier for the parent to get the child to work even more.

What some parents have done it to say that fun of any type is a waste of time, work is the only solution. The old Pilgrim way. Parents who spend time making their children happy and being their children;s friends often find a conflict when discipline is needed when the child cannot accept boundaries, after all the parents made them equal. Chua, one thinks perhaps, has a great publicist and in many ways one could say that her approach has certain superiority overtones devoid of substantial historical fact. 

I keep thinking of all the kids in New York at the end of the 1950s and their overall competitiveness. I remember Saturday, yes Saturday, classes at Bronstein and Wiener's SAT Prep, kids not satisfied with 700 or 720, going for not only 800 but finding the mistakes on the SAT, yes the game was to find out what they screwed up on ... and who got the letter off first ... a Feynmann like trick ... in a sense the New York way ... and after the class back to work with dad or uncle Harry, and if lucky after Sunday dinner you had a few hours off.

So perhaps there are some who have managed to prosper without a Chinese mother.

The Internet and The Right to Be Left Alone

In 1997-1980 I was Vice Chairman of a Presidential Committee at the NAS to study the evolution of the Internet. One of the issue I brought up was the idea of being anonymous, being left alone.

As Warren and Brandeis write in their famous text, The Right to Privacy, in 1890:

Then the "right to life" served only to protect the subject from battery in its various forms; liberty meant freedom from actual restraint; and the right to property secured to the individual his lands and his cattle. Later, there came a recognition of man's spiritual nature, of his feelings and his intellect. Gradually the scope of these legal rights broadened; and now the right to life has come to mean the right to enjoy life--the right to be let alone, the right to liberty secures the exercise of extensive civil privileges; and the term "property" has grown to comprise every form of possession-- intangible, as well as tangible...

Recent inventions and business methods call attention to the next step which must be taken for the protection of the person, and for securing to the individual what Judge Cooley calls the right "to be let alone." Instantaneous photographs and newspaper enterprise have invaded the sacred precincts of private and domestic life; and numerous mechanical devices threaten to make good the prediction that "what is whispered in the closet shall be proclaimed from the house-tops." For years there has been a feeling that the law must afford some remedy for the unauthorized circulation of portraits of private persons; and the evil of the invasion of privacy by the newspapers, long keenly felt, has been but recently discussed by an able writer. The alleged facts of a somewhat notorious case brought before an inferior tribunal in New York a few months ago, directly involved the consideration of the right of circulating portraits; and the question whether our law will recognize and protect the right to privacy in this and in other respects must soon come before our courts for consideration.

The "right to be left alone", albeit not in the Constitution expressly, was what Warren and Brandeis were getting at. Thus one of the things I was asking for the folks to consider a decade ago was the right to just look at something without having to identify myself. When I buy a NY Times on the street no one asks for my ID card. They do now in every building in New York, and that is somewhat reasonable, it is private property, but the news stand is not.

In a recent story on CNET it appears as if the current Administration is seeking to get every one's Internet ID so that at the drop of a hat or otherwise they can find out what each of us has done, seen, looked, at, bought, and the like, apparently without any prior cause, no Constitutional protection. It is as if the Internet was now a Government building, and if you want to enter you must show ID. It no longer is the corner news stand.

CNET states:

President Obama is planning to hand the U.S. Commerce Department authority over a forthcoming cybersecurity effort to create an Internet ID for Americans, a White House official said here today.

It's "the absolute perfect spot in the U.S. government" to centralize efforts toward creating an "identity ecosystem" for the Internet, White House Cybersecurity Coordinator Howard Schmidt said.

 They continue:

"We are not talking about a national ID card," Locke said at the Stanford event. "We are not talking about a government-controlled system. What we are talking about is enhancing online security and privacy, and reducing and perhaps even eliminating the need to memorize a dozen passwords, through creation and use of more trusted digital identities." 

The Commerce Department will be setting up a national program office to work on this project, Locke said. 

Details about the "trusted identity" project are remarkably scarce. Last year's announcement referenced a possible forthcoming smart card or digital certificate that would prove that online users are who they say they are. These digital IDs would be offered to consumers by online vendors for financial transactions. 

Schmidt stressed today that anonymity and pseudonymity will remain possible on the Internet. "I don't have to get a credential, if I don't want to," he said. There's no chance that "a centralized database will emerge," and "we need the private sector to lead the implementation of this," he said. 

 In fact the right to be left alone may very well be infringed. The issue is the assignment and tracking of IDs. Why the Commerce Department, a front, a charade for another entity, well there was NTIA but Commerce was always technically the least astute entity involved in any way in telecom. NSA would make sense but it would be illegal, the FBI, but they are really cops, the CIA would be illegal, the FCC, all lawyers, so where. Well it's the current Administration so set up a new Department, why not.

QE2: A Chinese Version

There is an interesting piece in China Daily as to how China may take advantage of the FED's QE2. It states:

The recent announcement by the US Federal Reserve that it will print more dollars raises fears of an impending currency war. Can the threat of a currency war be transformed into something more benign? Better still, can it stimulate fresh ideas and moves that lead to robust global economic recovery? The answer is yes if we pursue win-win business deals with imagination and goodwill. 

Put simply, the proposal is for China and other Asian countries to buy European technologies and assets. With the money, European companies can then buy technologies and assets from elsewhere, including the United States. This will provide a benign environment for growth in the real economy, because it will reduce the global trade imbalance and help the dollar to recover. 

At the heart of the issue are US trade deficits and the huge buildup of foreign reserves held by other economies in US dollars. One obvious solution is for these countries to increase their imports from the US and to buy into US assets. But what happens if the US restricts sales of goods and assets that foreign companies want to buy?The US has banned high-tech exports to China and has blocked takeover bids by Chinese companies. 

The US has not limited takeover bids in the strongest sense. China has and continues to take position in US entities. Yet it has not taken the extreme position that Japan did in their peak period in the 1980s.

And China is not alone in such matter. A Middle East country was not allowed to buy a port facility. The reason? The US does not consider these countries as friends and therefore does not trust them. 

But why should the US deny trade with countries that overtly threaten its security. Would we want to arm Iran and allow it an easier path? This is perhaps a weak excuse on the part of  China.

Let us for a moment ignore the question whether it is wise for the US to impose such restrictions. Let us instead ask if there are other ways to solve the problem. Europe has many things that the US has. But unlike the US, there is no unified will to restrict exports of a given technology or to disallow the sale of assets to foreign buyers. This provides a more favorable environment for buyers from Asia. 

Then does Europe become just a pass through to US exports.

China, with its vast pool of engineering and scientific expertise, does not always need to buy the most advanced technologies. There are two advantages of not going for the very best - one is the cost advantage, the other is that it faces much less official restrictions on exports. China can then use its technical skills to improve on these no-longer new technologies, as it has done in the case of its high-speed railway. 

So does this mean China wants to disintermediate the US?