Flash Boys by Michael Lewis

 As in his earlier books, Lewis tackles a subject that is probably mind-numbingly complex to most Americans, and turns it into an interesting narrative. In Flash Boys he digs into the story of high frequency trading, or HFT, and how its growth has created a hidden "tax" on all investors.

The basic idea is that sometime shortly after the advent of fiber optic cables which transmit stock trading information between brokerages, banks and exchanges some traders realized that the amount of time information took to reach its destination could vary, depending on the length of the path taken, and that "All optical fibers were not created equal; some kinds of glass conveyed light signals more efficiently than others." Therefor, if they  paid for connections to the exchanges with very short physical distances, they could see the information on price changes and orders being placed before anyone else, and take advantage of that information in various ways to make money.

"The race they (high speed traders) needed to win was not a race against the ordinary investor, who had no clue what was happening to him, but against other high speed traders."

For a vastly simplified example, a large investment firm might want to place an order to buy a million shares of Coca Cola stock, and as a prelude to that order, they would begin by placing a small order, just to find out what the current market price is. A high frequency trader who is in the position to see that small order being placed before any other sellers see it can immediately place orders of their own which drives up the demand, which drives up the price, and they make a profit on the spread between the two.

Brad Katsuyama, who worked for the investment arm of the Royal Bank of Canada, discovered that somehow "the market" seemed to be anticipating his stock orders, and between the time he got a price quote, and then actually placed the order, only seconds later, the price had risen. This was costing his bank and its clients a great deal of money. As he began to investigate things to try to figure out why this was happening, he uncovered the entire murky business of the high frequency traders, and embarked on a crusade to make the market "fair" once again for all investors.

If you're thinking that you shouldn't care, because it's just the big banks getting played, and they make lots of money anyway, you need to remember that every small investor with a 401K plan has their money with some brokerage firm or bank, and every time the mutual fund in that 401K buys and sells stock, it costs more and sells for less, because of the HFT folks. We all get skinned.

One little interesting tidbit:
"During World War II his (Brad Katsuyama) Japanese Canadian grandparents had been interned in prison camps in western Canada."

I thought only the big bad U.S. interned its own citizens during the war. You mean to tell me that other nations thought their foreign born citizens might be a security risk, too?

Lewis also talks about "dark pools" a bit. A dark pool is an internal stock exchange run by a big bank in which one client is able to sell to another client very quietly, without the public exchanges becoming aware of the transaction, while the bank takes a cut of the transaction.

"The amazing idea the big Wall Street banks had sold to big investors was that transparency was their enemy. If, say, Fidelity wanted to sell a million shares of Microsoft Corp. - so the argument ran - they were better off putting them into a dark pool run by, say, Credit Suisse than going directly to the public exchanges. On the public exchanges, everyone would notice a big seller had entered the market, and the market price of Microsoft would plunge. Inside a dark pool, no one but the broker who ran it had any idea what was happening."

I rather loved this quote from one of the Irish-born programmers, Ronan, who went to work with Brad in his crusade to take down the HFTs.

 "I'm making thirty-five and they're making a buck twenty and they're f**king idiots."

And in the spirit of the corruptocracy that our nation has beome:

"...more than 200 SEC staffers since 2007 had left their government jobs to work for high-frequency trading firms or the firms that lobbied Washington on their behalf. Some of these people had played central roles in deciding how, or even whether, to regulate high-frequency trading." 2011 RBC study

Talking about why Russians seemed to end up programming for the HFTs,

"Good Russian programmers, they tend to have had that one experience at some time in the past - the experience of limited access to computer time."

I remember those days, myself. We used to have to make our programs lean and mean, because they ran on shared resources, which we were allowed to use only in specific time slots. With apparently unlimited data storage space and massive amounts of RAM available on inexpensive computing platforms these days, it's no wonder code multiplies indiscriminately.


This book was both fascinating and a bit worrying. Lewis never does come right out and say, "Brokerage A and Bank B have the programs in place to not get taken advantage of by HFT" and I really wish he had, so I'd know where to place my bets.

Scarcity by Sendhil Mullainathan

 I was intrigued by a short review of this book on one of the finance blogs I read regularly, so I picked up a copy at the library. Once more, this is one of those scholarly works where the authors took their research paper and tried to turn it into a full-length book, probably stretching their initial hypotheses to the breaking point in order to make a point...and word count.

One of the things their research uncovered is the focus dividend - the positive outcome of scarcity capturing the mind. One example that comes to mind is finishing up a paper that's been due for months on the last possible night, like most college students do. The whole concept of "making your last shot count" comes vividly to mind in this context. If you have less resources, you will make the ones you have as effective as possible.

Another term they invented for the book is the tunneling tax - the negative effects of focusing single-mindedly on managing the scarcity at hand. Tunneling often happens in the area of insurance; the poor believe they cannot afford health insurance because their day to day demands are commanding all of their resources and attention, and they are unable to look at the long term effects of going without this essential service. We won't get into the whole political battle over employer and government provided, mandated or subsidized health care at this point, but I will mention that I have known some young people who declined their employers CHEAP health care coverage because they "couldn't afford it", then spent far more money on "necessities" like new hunting rifles and tinted windows on their cars. Tunneling happens in the business world quite often, as well. Think of the companies that made decisions in search of a short term profit, and ruined their business in the long term,.

Scarcity in our personal, emotional or financial lives has a number of effects on our mental bandwidth (the authors borrow a networking term here). The two primary components of bandwidth as defined here are cognitive capacity, the mechanisms that underlie our ability to solve problems, retain information and indulge in logical reasoning, and executive control, the way we go about planning, paying attention to, initiating and inhibiting actions.

In the area of executive control, one interesting thing they talk about is that willpower is often a function of diverting your attention away from the items or actions which you wish to avoid, and focusing your attention on things you wish to embrace. "Once you realize that willpower is just a matter of learning how to control your attention and thoughts, you can really begin to increase it."

An interesting example from nature of the effects of scarcity versus plenty (though God only knows how much mental capacity insects actually have that could be affected by worrying over scarcity) was that bees build intricately constructed honeycombs out of wax, which is manufactured within their bodies after consuming pollen (a pound of wax requires more than ninety thousand little bee journeys to collect nectar from flowers) whose walls are perfect hexagons with a thickness accurate within a two percent tolerance, while wasps use easily acquired mud and build very sloppy ill-constructed nests.

Cause? Effect? I dunno, but it was an interesting factoid.

One of the ways in which the poor are affected by scarcity is that the "tunneling" causes them to think only of the immediate need. One business that takes advantage of this is the payday loan industry.

Did you know that "In 2006 there were more than 23,000 payday lender branches in the United States, which was more than all the McDonalds (12,000) and Starbucks (almost 9,000) locations combined."?
3.5 billion dollars in fees each year!!

Some support for one of the things I've long maintained (and read somewhere before) - working overtime over a long period of time is counterproductive and if you can't get the job done in 40 hours a week or less, on average, you're doing it wrong, may be found in a couple of  articles they reference Why Crunch Mode Doesn't Work and Bring Back the 40 Hour Work Week.

Interesting thought,

"Recent research shows that self-control may actually get depleted as we use it. One study, for example, put dieters in a room with some highly tempting snacks (Doritos, Skittles, M&Ms, salted peanuts) and gave them a computer task to perform. For some, the snacks were placed, highly visible, on the table right next to them. For others, the snacks were far away, out of mind. Having completed the computer task, subjects were given access to large containers of ice cream. Those who had been sitting next to the snacks, continuously resisting the urge, finally caved. They ate significantly more ice cream than those who were less tempted by the distant snacks. Researchers have likened willpower to a muscle, which fatigues with use."

Excuses for my binge eating at last! I've exercised my willpower far too long.

In the context of studies about the poor not taking medications they needed to stay healthy, even when the medicines were freely provided to them, they mentioned a startling fact. After decades of medical research, we have medications which can keep diabetics healthy, save HIV victims, cure tuberculosis, and yet diabetics only take their medications 50 to 75 percent of the time, millions have died of AIDS due to failure to take their medications regularly, and in order for tuberculosis treatment to work, doctors have to assign each patient someone who comes every day to watch them take their pill, otherwise they won't do it.

Crazy, huh?

The authors come up with a number of ways in which they recommend we administer various social programs which serve the poor which take into account the effects of scarcity. It's an interesting read, but I'm not sure that sheer human cussedness won't foil those efforts just as it has foiled others we've already tried.

As I said in the beginning, they really stretch things to show how scarcity affects everyone in similar ways, but there are just enough outliers and just enough contradictory phenomena out there to make me doubt that things are as simple as they hope.

Code Red by John Mauldin

 The authors lay out a very thorough history of how the central banks and governments, both in the United States and a number of other countries, such as Japan, the UK, and the Eurozone, have steadily and perhaps recklessly overspent, overborrowed, and overinflated the currency of our respective nations. There's nothing really new to me in all of this, it's pretty standard fare from "gold bugs", most of whom are trying to sell precious metals. For someone who hasn't seen this information before, it serves as a thorough education in finance and history at a level which most people will not get from the public schools.

I even learned a new (to me) term - rentier capitalist - one who no longer works for a living, but makes their living by "clipping coupons", collecting dividends, spending interest on accumulated capital.

The point of all this rhetoric, of course, is to tell a cautionary tale, which can be summarized thusly:

"Since there can actually be no such thing as a government raising revenue at no cost, simple logic tells us that someone has to pay. It is impossible to know in advance who will pay for a central bank's 'free lunch,' only that someone, somewhere will eventually pay."

So enjoy all your free lunches, folks. At some point, the bill will come due, and whatever working stiffs are left in this country (and others) will end up paying the tab. If you think The Rich are going to pay, you haven't been paying attention. The Rich will never pay this bill, they own the bankers and the lawmakers. You need to get over that bit of foolishness and figure out how to make sure paying the bill doesn't break you and your family.

There's a sentence in this book that explains a lot of the semi-recent headlines.

"After the introduction of the euro, capital flowed freely; and countries such as Spain, Portugal, Ireland and Greece imported lots of foreign goods, borrowed heavily, and built up very large unsustainable external debts in a currency they could not print or devalue."

One of the "traditional" methods that governments have for paying down their borrowing is to inflate their currency, so as to use less valuable (in terms of goods and services which one can purchase with them) dollars, e.g. When you take away this ability by assigning the "value" of a currency to a central authority, as happened in the Eurozone, governments which behave irresponsibly with their money cannot take advantage of this tactic. And the unrest begins.

What was rather novel about this book was that Mauldin doesn't appear to be selling precious metals, like most inflationary Cassandras. In fact, he doesn't really push buying gold, merely mentions it as part of a balanced portfolio.

I found interesting Harry Browne's Permanent Portfolio, proposed in 1981, which apparently has had a pretty steady, though not spectacular, return over several decades.

• 25 percent in U.S. equities, which tend to do well when economic times are good.
• 25 percent in gold and precious metals to protect yourself against inflation.
• 25 percent in Treasury bonds, which normally do well when the economy is slowing, and in a recession.
• 25 percent in cash, which adds stability to the portfolio

Worth considering.

Mauldin makes a claim, based on statistics, I'm sure, that,

"With interest rates so low and inflation eroding their income as the cost of living rises, older people cannot afford to retire and are often beating out younger jobseekers in the job market because they have more experience and are willing to work as hard as the young people."

As a person rapidly approaching the "older" worker status, my experience and that of my cohort seems to be that many companies are actually letting older workers go, and replacing them with younger workers, strictly for financial considerations - younger workers will work more cheaply, while older workers have commanded higher salaries. There may be some countercurrents to this in the entry level Wally World jobs, but older workers are being given "early retirement" in droves, and many of them are having serious difficulty finding new jobs comparable to the ones they are leaving. Take it all with a grain of salt.

A good book, with some good strategies for managing your family's nest egg over the coming decades, I believe, but nothing truly revelationary here.

The Real Crash by Peter Schiff

 There's nothing very surprising in the early going in Peter Schiff's new book, though it does serve as a good introductory work for those who aren't familiar with the workings of the Federal Reserve, and the role which the government has played in the most of the financial crises recently, such as the dot-com bubble, the housing bubble and the credit bubble.

Schiff relates the tale of what happened in the Harding administration after WWI, when the economy saw an increase in unemployment and a lack of economic growth - the last time in our history that a politician had the courage to let us suffer the pain of doing the right thing - and Harding "paid off the war bonds, slashing the national debt by one third".  The money used to pay off that debt was removed from the money supply, which put a downward pressure on prices, and an upward pressure on interest rates, which discouraged borrowing and encouraged saving.

"Instead of trying to fix the lagging economy through stimulus, the Fed responded to the economic contraction with monetary contraction."

Within a few years, unemployment had shrunk to 2.4%, and the stock market had exceeded its previous highs.

Quite a contrast to our government's response to the 2008 crash, and quite a contrast in results, as well.

On the creation of the dot-com bubble, Schiff writes,

"Many liberal economists and Fed defenders will argue that the Fed didn't create the stock market and dot-com bubble of the late 1990s. They blame 'greed' and 'manias.' There's a small degree to which they are right: the Fed did not specifically steer capital toward dot-com stocks. The Fed just created the excess capital that needed a home, and market forces and other government policies determined where that money went."

Schiff brings up an interesting distinction regarding the mortgage interest deduction.

"This is a huge mortgage subsidy...it distorts the market in favor of homeownership (more precisely, leveraged homeownership)."

The real estate bubble, he argues, was also brought on primarily by the Fed and other government policies. Fannie Mae and Freddie Mac guaranteed subprime mortgages in numbers never seen before, the Fed made cheap money readily available to lenders, the Community Reinvestment Act pushed banks to lend to poor people who would never have previously qualified for a loan, and the Bush administration, through the American Dream Downpayment Act,  provided grants to first time homebuyers.

The next bubble Schiff sees forming is the "government bubble",  a rapidly growing federal debt caused by out of control spending, reckless borrowing, and the Fed's inflationary policies.

Schiff busts the myth of government "job creation", by showing its many failures in that area, but also showing that the government's attempts to create jobs actually misallocate resources that could create jobs in other areas the government hasn't blessed with its favors.

The money quote:

"The problem isn't that the government bets on the wrong horses. It's that the government should be at the track in the first place."

In fact, government can best create jobs by staying out of the way.

"Jobs come from (a) the incentive to make a profit and (b) capital formation. The harder government makes it for employers to earn profits and the less we save to finance capital formation, the fewer jobs that will be created."

He spends a bit of time talking about "Hiring Taxes", those costs associated with creating a new job for employers, such as the employer match on Medicare and Social Security, unemployment insurance, worker's compensation, and other taxes, including new costs imposed by the ACA, aka Obamacare.

Schiff claims that people could take the additional money they would be paid if these hiring taxes were eliminated to "self insure" on some of these things. I have to differ with him there. Most people, unfortunately, will not do the wise or prudent thing, they'll simply spend the excess on consumer goods. We've seen this with the optional retirement plans like 401Ks and IRAs, we've seen it with young healthy folks failing to sign up for employer-provided health insurance, and recently the ACA, and if we went to an optional "social security" system, they'd probably not put anything away for retirement there unless forced to.

Heh. In contrast to the whole "follow your passion" movement these days, Schiff mentions in passing,

"With a few exceptions most people have jobs only because they need a job in order to afford the stuff they really want and need."

And, under the category of "preaching to the choir", he says,

"Entry-level jobs are not supposed to provide enough income to support a family. By the time individuals are old enough to marry and have children they should have acquired the skills necessary to command much higher pay. They acquire those skills working for low wages while still in their teens and prior to marriage. If the (artificially and legislatively high) minimum wage prevents them from getting those jobs, they will never acquire the skills necessary to support a family. In other words, the minimum wage knocks the bottom rung off the job ladder, making it impossible for many ever to climb up."

I like,

"While politicians and the media portray regulations as a way to keep 'big business' in check, the real effect of regulation is often to crush their smaller competitors and to keep others from even entering the fray to begin with."

and,

"So there you see the real threat the FDIC was created to battle: banks were losing business because customer didn't trust them. The real effect of government deposit insurance is not to protect depositors, but to protect banks."

When the Fed inflates our money supply, Schiff says,

"When inflation's effects show up in the form of rising prices, consumers don't typically blame politicians, they blame the merchants. In fact, politicians - the ones who caused the higher prices - are often the first ones to scapegoat merchants or manufacturers when prices start rising."

Schiff also debunks Warren Buffet's mantra that he pays a lower tax rate than his secretary. It seems Warren is only talking about his personal income tax rate, not the amount that Berkshire Hathaway, of which Buffet is the primary owner, paid on its earnings - $5.6 billion.

He proposes some "macro" solutions in the middle section of the book, including:

• Return the Fed to its original mandate
• Tax Reform
• Return to the Gold Standard
• Eliminate Social Security, Medicare and Medicaid
• Deregulate the Financial Industry
• Fix Higher Education
• Fix Healthcare
• Shrink Government

I think we've seen over the last few decades that there is little actual political will to allow free market policies and the principles of limited government "fix" these problems. They all sound like great ideas, but I am really doubtful that any of them will ever come to pass, absent a black swan event that forces us in that direction. Schiff's Real Crash may be that event, but the magic eight ball isn't giving out any answers right now.

During all of the years my kids were going to school and participating in band, orchestra and choir, I got to listen to music teachers lecture the parents about how it was a proven fact that learning to play music was good for children's grades in all the other subjects. I had my own theory about that, since I would see the same group of parents - heavily involved with their children's success - at all of the other school events, soccer games, football games, and so forth. The parents encouragement and active participation in making sure their children's lives were enriched and educational was, in my opinion, more important than whether or not they played music.

Schiff says something similar about the mantra that people who attend college will earn a significantly higher income than those who do not.

"In other words, all the factors (being a hard worker, coming from wealth, attending private or good public schools, being smart, having parents who attended college) that make someone more likely to go to college and finish college are also the same factors that, in and of themselves, raise a person's likely income."

Another thing upon which he and I agree, and which I have believed since I first attended college, decades ago:

"As an employer, even if you think college has no value, you might count on colleges to perform a screening function. Getting into college and finishing college indicates some level of competence and ability to follow instructions."

With respect to the huge "public service" push to make sure that all students in the U.S. attend college:

"Who is the real beneficiary from policies and cultural biases that push more and more eighteen-year-olds to go to college? The answer, of course, is the educational establishment itself."

It's all about the benjamins, baby.

And the reason for the skyrocketing college costs we've seen (applies to healthcare also):

"This is typical government action. Wreck an industry with subsidies and regulation; blame the ensuing failure on capitalism; then 'solve' the problem with a complete government takeover."

Bingo.

Regarding ridiculous student loan debt:

"...it's hypocritical for Congress to push eighteen-year-olds to take on $20,000 or more in debt. Our federal government is always trying to say who shouldn't be borrowing, and which loans are 'predatory,' claiming that lenders are exploiting people who don't know better. Is there any clearer example of someone who doesn't understand debt than a high school senior who has never handled his on finances on a meaningful level?"

Schiff does a great job of identifying many of the root causes of our huge debt problem, and lays out another prediction of how it will all end - badly, of course. He proffers some libertarian-flavored solutions for most of the causes, which will, in my opinion, never get implemented due to lack of political will to do the right or necessary thing. It's far simpler to bury our heads in the sand and pretend everything is all right.

Also unfortunately, the "personal" solutions he offers aren't much better, for the lower to mid- middle class. His company, EuroPacific Capital, only serves high income, high net worth individuals, and the types of services they provide for wealth protection and management are unavailable to average hard-working folks. Nothing he prescribes is significantly different than what I've seen before from other Cassandras, and the practical issues remain the same. If it is possible for you to do so, he recommends getting your money out of America and out of the US dollar.

I've got a bit of Kiwi shrapnel* lying around somewhere, I should be ok.

This is a book which most people would benefit from reading, but it's unlikely that the ones who need it the most, will.



*a New Zealand slang term for pocket change

The Second Machine Age by Erik Brynjolfsson and Andrew McAfee

I'm thinking that I need to create a new label on this blog, called (tongue firmly in cheek) The PollyAnnas. Every so often I run across a book written by a group of optimists with a vision of the future so bright and cheerful that it blows out all of the cobwebs deposited by today's mainstream media. Unfortunately, they're few and far between. In fact, in the last three years, I've reviewed only two other PollyAnnas - Diamandis and Joffe.

This book starts out quite well, fulfilling my expectations in talking about the rapid pace of technological progress, how Moore's Law and the compounding effect of worldwide networking have given us so many everyday devices that once were the stuff only of science fiction, such as a driverless automobile, Star Trek-like communicators which we all carry around with us, amazing new social networks, and so forth. It begins to fizzle a bit in the middle of the book when the authors begin to talk about the social and economic effects of the new technology, as it rewards those people who are able to increase their productivity and skills by using computers and networks and apps, while it leaves others falling behind and losing their jobs to our new robot overlords (not quite literally...yet). The latter third of the book contains their prescriptions for individuals and government to follow going forward to alleviate the problems and to take advantage of the opportunities, which seems somewhat biased towards their somewhat Progressive take on things, so I just took it with a grain of salt and enjoyed a few of their wilder thoughts along the way.

In their discussion of how computers are terrible at pattern recognition, but good at following rules, known as algorithms, I found the following side note amusing:

"In the years leading up to the Great Recession that began in 2007, companies were giving mortgages to people with lower and lower credit scores, income, and wealth, and higher and higher debt levels. In other words, they either rewrote or ignored their previous mortgage approval algorithms. It wasn't that the old algorithms stopped working; it was that they stopped being used."

What a great description of the "algorithm" which precipitated the artificial bubble in housing prices and all of its unexpected consequences.

In an interesting illustration of how far we've come very rapidly:

"ASCI Red... was the worlds fastest supercomputer...in 1996. It cost $55 million to develop and its one hundred cabinets occupied nearly 1,600 square feet of floor space...Designed for calculation-intensive tasks like simulating nuclear tests, ASCI Red was the first computer to score above one teraflop...To reach this speed it used eight hundred kilowatts per hour...By 1997, it had reached 1.8 teraflops.

Nine years later another computer hit 1.8 teraflops. But instead of simulating nuclear explosions, it was devoted to drawing them in all their realistic, real-time, three-dimensional glory. It did this not for physicists, but for video game players. This computer was the Sony Playstation 3."

Ain't it great!

I discovered a new term, "network effect" - a situation where the value of a resource for each of its users with each additional user.

The authors talk about Waze, an application that works far better than most GPS mapping and direction-providing applications, which takes into account the information both automatically and manually fed into it by its users and their cell phones, providing the most efficient method of navigating from one point to another, based on traffic patterns, speeds traveled in real time, and so forth. It doesn't merely take you down the freeway to your destination, but will make use of side streets if traffic is less dense there on your morning commute, for example.

Other apps which obviously benefit from the network effect are social networks like Facebook, LinkedIn, and Twitter, which get more useful to all users as more users become connected.

Another new development which may be promising involves the Jeopardy playing computer, Watson. It is being reprogrammed with medical data which scientist hope will help doctors make better, quicker diagnoses. In one AI-related project, a computer was programmed to scan for cell patterns in cancer biopsies that might predict survivability rates. The program discovered three new patterns that pathologists had not previously used, which were good predictors.

The authors have an interesting theory:

"In the past couple of decades, we've seen changes in taax policy, greater overseas competition, ongoing government waste, and Wall Street shenanigans. But when we look at the data and research, we conclude that none of these are the primary driver of (income and wealth) inequality, Instead, the main driver is exponential, digital, and combinatorial change in the technology that undergirds our economic system. This conclusion is bolstered by the fact that similar tends are apparent in most advanced countries. For instance, in Sweden, Finland, and Germany, income inequality has actually grown more quickly over the past twenty to thirty years than in the United States."

"...technologies like big data and analytics, high-speed communications, and rapid prototyping have augmented the contributions made by more abstract and data-driven reasoning, and in turn have increased the value of people with the right engineering, creative, or design skills. The net effect has ben to decrease demand for less skilled labor while increasing the demand for skilled labor."

Another concept I wasn't familiar with was the idea of "winner-take-all" markets, which seem to be gradually taking hold of the world of business. With the removal of geographic barriers to marketing made possible by the worldwide web, it is possible for people to rapidly find the best product, app, or service, and to base their spending decision on the absolute best choice, rather than the merely relatively good choice. Competitors who don't have the best choice are rapidly eliminated from the market.

One of the keys to getting ahead in the future mentioned in the book by Brynjolfsson and McAfeee is going to be the ability to play well with robots. Those who are able to augment their skills by taking advantage of technology will do well, while those who do not will wither.

They mention an interesting avant-garde clothing manufacturer called Zara who determine which clothes they will create, and what to ship to individual stores by consulting their store managers about what will sell well in that location over the next few days.

"Managers figure this out not by consulting algorithms but instead by walking around the store, observing what shoppers (particularly the cool ones) are wearing..."

Which raises the question, "How do you know who's cool?" It's high school all over again, apparently.

Side note, in case you're occasional confused by the difference between tera, peta, and exabytes, here's a link to an exabyte definition on Wikipedia that helps a lot.

I found mildly amusing that researchers Ernest Pascarella and Patrick Terenzini summarized more than twenty years of research in their book How College Affects Students by telling us, "...our most fundamental recommendation to students and their parents: study hard, using technology and all other available resources to 'fill up your toolkit' and acquire skills and abilities that will be needed in the second machine age."

Ya think? How many tax dollars were spent on that grant, Captain Obvious?

In the midst of their policy recommendations to solve the problem of technical illiteracy among the unskilled (which, not surprisingly contains the first prescription "pay teachers more"), I found this one puzzling.

"We do not think the right policy would be to try to halt the march of technology, or to somehow disable the mix of exponential, digital, combinatorial innovation taking place at present."

Who in the world is saying that we should? Maybe a few Luddites in the hinterlands, but the rest of us, like Ken Jennings, are welcoming our new robot overlords.

One idea which they present is one I've seen in science fiction for a long time - the idea of a universal basic living stipend for all citizens. What I hadn't realized is that it was actually seriously considered and proposed during the Nixon administration, with the Family Assistance Plan.

"...it also faced a large and diverse group of opponents. Caseworkers and other administrators of existing welfare programs feared that their jobs would be eliminated under the new regime; some labor leaders thought it would erode support for minimum wage legislation; and many working Americans didn't like the idea of their tax dollars going to people who could work but chose not to."

La plus ca change, eh?

They list some ideas from a brainstorming session on better shaping the future. I particularly like #5.

"Start a 'made by humans' labeling movement, similar to those now in place for organic foods, or award credits for companies that employ humans, similar to the carbon offsets that can be purchased. If some consumers wanted to increase the demand for human workers, such labels or credits would let them do so."

Perhaps if we started a rumor that foods grown by robots caused birth defects or sexual impotence...

Best chuckle I had all day.

An interesting, occasionally thought-provoking read. I only wish it had spent more time on reporting about all the great things happening in high tech, and not so much politically pontificating.

The Nanny State Blues

Ranting variations on a theme

One of the persistent memes in US politics today is that people are essentially incapable of taking care of themselves, and thus the government must be called upon to take care of them – to act in their best interests. I’m not even going to get into the silliness of government officials knowing what’s best for anyone (and how do we know they're more qualified than the folks they're assigned to take care of?); that’s an entirely different discussion. I’m afraid that anyone with even a lick of sense and powers of observation would have to agree with the first principle here – a significant number of people are, quite frankly, not doing a good job of taking care of themselves, and really do need someone to take care of them; the matter of who should do so we’ll leave for another day.

Healthcare

One of the justifications for passing the silly ACA six years ago was that there were millions of uninsured people out there. A segment of the demographics counted was the young people who simply felt that they didn’t need health insurance, or that it was too expensive.

I’ve had some personal and anecdotal experience in that area, as I once worked for a company that offered really nice health insurance coverage at what I felt was a very reasonable price. A young coworker who was also a personal friend determined that he and his lovely wife were young and didn’t want to pay the premium for their coverage.

This was fine until she contracted a rare form of terminal cancer. Her illness and death left him not only emotionally but financially devastated, because he felt that he “couldn’t afford” his portion of the company subsidized the health insurance. How many of the health care bankruptcies in our country start with a tale much like this one?

Yet I am reluctant to endorse legislation which makes it mandatory for a person to purchase health care insurance. It seems a violation of their rights to me.

Retirement

Every other day in the media and the financial papers, it seems, there is another story about how Americans have only saved an average of $1000, $40000 or some other absurdly low figure in their 401Ks or IRAs. Surely something ought to be done about it, right? Honestly, I’m afraid many people are not quite bright enough to figure out that they really are going to need some money to retire on some day. Maybe they’re relying on hitting the MegaMillions jackpot at some point.

I’m sure a number of them say to themselves, “Some day, when I’m making $X a year, I’ll start to put money in a 401K. Some sweet day!” But for most of them, that day never quite rolls around, and when the kids are finally out of college and the nest is empty, they look around and think, “Wow! I really need to get to work on this retirement thing.”

So, the government proposes some mandatory retirement plan (I thought we already had a pyramid scheme mandatory plan called Social Security) like MyIRA, where they’ll put your money away in an account earmarked just for you. If you’re foolish enough to believe they can be trusted not to spend all of that money, too, I’m not sure your survival instincts are well-developed enough that you’re going to survive long enough to retire, so it may be a moot point.

Again, I don’t believe in coercion to force people to buy government sponsored bonds and slow growth funds in a MyIRA, but someone’s got to beat them about the head and shoulders to wake them up, right?

Diet

What about recent legislation in New York which keeps those poor, coke-swilling fat folks from drinking too large a cup of sugar syrup? I mean, it’s painfully obvious that obesity has reached gargantuan (see what I did there?) proportions in the U.S.A these days. Someone ought to do something about it!

Maybe if we just require bigger (supersized?) nutritional labels on the food we buy in the convenience stores, people will be able to read them. I hadn’t realized there was a connection between Type II diabetes and myopia, but perhaps I’m just oblivious to the obvious.

Verily, verily, I give unto you the most obvious commandment of them all. In order to lose weight, you must “Exercise more and eat less”. I have a personal friend who lost over 150 pounds by following those two simple rules over a year’s time. A stunning transformation!

I’m pretty certain even a kindergarten child can understand the concept, so we are we a nation of fatties? It can’t be a matter of awareness, it has to be all about self-control. But should we cede to the government the right to determine our diet? What if I like chocolate cake? Should some bureaucratic be allowed to rip it from my grasp? He can take if from my cold, dead, hands, if he dares.

Safety

What about safety issues, like motorcycle helmet laws, seatbelt laws, the mandatory use of child safety seats? When you remove my automatic, cynical reaction which tells me that someone at Graco is lobbying their congresscritter to keep making stricter child safety seat laws which oh so coincidentally coincide with their introduction of the latest, greatest and…dare I say it?...more expensive model, there’s not a whole lot of there there.

First, I believe that wearing a helmet makes riding a motorcycle somewhat safer, or at least not quite as likely to result in massive head injuries. I never ride anywhere without one, and I would never let a passenger ride without one. But do we really have to tell adults that they must wear them or be cited? If you're over 21, and I tell you not to stick your face in the lion's mouth, my responsibility pretty much ends there, if you decide to do it anyway. Again, I think some senator's brother-in-law owns a helmet manufacturing company, and came up with a new way to drum up some business.

Don't even get me started on the new "overfill protection" propane tanks we all had to buy to replace our perfectly good old "unsafe" tanks.

Child safety seats I can actually support, to some degree, as we all have an obligation to protect the small and helpless in our care. But it just seems crazy that every other year a new study comes out telling us which way they have to face, directly contradicting last year's data. I think that if you're hurtling down the road a mile a minute in a great big pile of steel, Murphy's Law is eventually going to catch up with you, and people are going to get hurt, no matter which way their seat is pointing.

I'm actually amazed sometimes, as I cruise down the multi-lane freeways, that all these people, each with their own agenda, manage to navigate to and fro every day with as little mayhem as they do. Think about it.

Ok, I'll climb down off my soapbox for a bit now.

The Myth of America's Decline by Josef Joffe

 For a while now, whenever I hear someone preaching a doom and gloom scenario, like the collapse of the economy, the total system crash of computers worldwide, or the disaster of global climate change, my first response is to try to figure out what they're selling. Hang on to your pocket books, folks, the hucksters are after your gold once again. If you hike to the headwaters of the source of the rumors of the dollar swirling 'round the drain, you'll usually find a hedge fund manager or a gold brokerage. When Y2K was the scare du jour, I'm pretty certain the generator salesmen were making out like bandits, and when I look at the carbon crazies' agenda, I see the sale of indulgences which rival the excesses of the early Popes, or heavy investments in "green" tech.

Josef Joffe does a great job of cataloging decades of pessimistic prophesies which our aspiring or existing leaders shouted from the rooftops in order to get our attention, our votes, or our cash. I had little yellow stickers all over the place, marking relevant passages, and it's tough to capture more than a taste of it here.

However, most of you can remember some of the scenarios we allegedly faced, even when they have directly contradicted one another from decade to decade.

"in the 1980s...following a nuclear exchange, a smoke- and particle-laden atmosphere would thrust the world into a new ice age. As of the 1990s...having unleashed the fossil-fueled fire of industry, they were now reaping global warming."

I remember, of course, when Russia was getting the lead over us in the Arms Race, and they were going to be able to counter our massive nuclear arsenal at will, and overwhelm Europe with their communist regime. Then, Japan was going gangbusters, and was buying real estate, banks, and other businesses right and left, and we were soon to be overtaken by Empire of the Rising Sun. Then, when Europe finally united and created a new global currency - the Euro - the demise of the almighty dollar was at hand.

"To praise others is to prod America. Russia, Europe, Japan, et al. will overtake us, unless we labor hard to change our self-inflicted destiny. The basic diagnosis remains constant; only the prescription will vary according to the ideological preferences of the seer...dramatization and exaggeration, fibbing or even outright falsehood, are all part and parcel of the prophecy."

It was rather interesting to note this little tidbit about all the Cassandras:

"...psychologist Philip Tetlock, after a an exhaustive review of 82,000 predictions by 284 policy experts over twenty years...performed worse than if they had blindly pulled their forecasts out of a hat...'These experts never lose their reputations, or their jobs, just  because long shots are their business'..."

The reality of the situation is that the United States has gained such a lead on the competition that catching up is a gargantuan task, and not as likely to happen as quickly as our detractors would hope. The data on GDP of the top world's economies shows that the grand total of ALL of  Brazil, Russia, China, India and Japan's combined economies to equal that of the United States.

The United States far outweighs all the rest in its sheer military power and tonnage, especially that which can be projected over global distances. In combat-capable aircraft, we have 3591, with the next closest contender being China, with 2004 (2012 statistics), in naval aviation, we have 1,429 to China's 311, In tankers and transport aircraft, we have 1,318 with the next closest being all of NATO Europe at 411, with china falling to a distant 5th with 77. The only statistic in which the U.S. "loses" is total number of men under military arms, where China has us doubled.

So, if it comes to a land war on the Asian mainland, we may have some issues. (Shades of Princess Bride!)

Joffe coins a phrase (or perhaps files off the serial numbers on it) for the type of economic growth which has been seen in the past in Japan and other Asian nations, which China is now pursuing - "modernitarianism". This is a combination of rapid modernization, industrially and technologically, with the full planning, backing and control of the state government. When combined with a ready supply of cheap labor which can be easily encouraged to move from the countryside to the cities where the industries are located, it can produce amazing double-digit returns for some period of time, but eventually runs afoul of its inherent limitations, compared to free market capitalism.

"The stronger the state's grip, the more vulnerable the economy to political shocks."

"Once the long run irons out the cyclical kinks, it spells out an enduring message: There is no endless double-digit growth in economic history; what goes up, eventually comes down to 'normal.'...no other country has escaped from this history since the Industrial Revolution..."

"Unconventional ideas and intellectual risk taking grow not out of the Politburo but from below. The government can shower money on the chosen, funding particle accelerators and space exploration (Green Power?). Yet the hardware will grind and grate without the right 'software', call it 'culture of freedom' or 'intellectual anarchy'."

This is not to say that what we've seen in the past in the West is unrestricted free market capitalism (I'm not sure we've really ever had that, despite the anti-monopoly propaganda resulting from the Gilded Age and the Robber Barons).

"Yet Asia by no means has a historical monopoly on this type of Asian values (corruption and cronyism). Indeed, lavish rent seeking, as granted by the state to favored groups, has worked its insidious ways in the West, as well. The two rapid risers of the late nineteenth century - the United States and Imperial Germany - enjoyed myriad kindness as from the cornucopia of the state, be they monopolies, cartels, franchises, subsidies, import barriers, or the suppression of labor unrest...the magnificent success story of the West unfolded behind the high walls of the nation-state, with the quite visible hand of the government bestowing succor and privilege. China didn't invent this model."

One of the most oft-repeated messages of doom is that the United States educational system has fallen far behind that of the rest of the world, and that our children have become woefully underprepared for life in college and beyond.

"A recent classic reads, 'Last year, more than 600,000 engineers graduated from institutions of higher education in China. In India, the figure was 350,000. In America, it was about 70,000'...Unsurprisingly, the alarm went hand in glove with a call for a lot more federal aid to engineering education."

China's "engineers" would be considered technicians in the United States. Our engineering schools are, in all reality, far better than most of their foreign competitors.


Our Federal government gives $36 billion annually to universities just for science and engineering programs. That budget dwarfs those of Europe and Asia.

Joffe pens, "Doom determines the national interest and then opens the national purse."

I'm seeing a version of this in my home state of Idaho right now. There's a constant barrage of commercials and advertisements in the media, telling us what a horrible job we're doing educating our children, and claiming that some unbelievably high percentage of our children cannot perform at grade level in reading, writing and 'rithmetic. I the true purpose of all of this propaganda is to get us all to vote for higher school levies and to lobby our state legislators to pass higher budgets for higher education... and lower education, for that matter.

I have to wonder how our terrible, horrible, no good, very bad school system here managed to send my daughter off to university to graduate in three years with a bachelors degree in mathematics (she wanted to be a math teacher until she sat through her first education class and couldn't stomach the nonsense they were spouting), and equipped one of her classmates with a full ride scholarship to Yale, another a music performance scholarship to USC, just to mention a few.

Listen, I think competent teachers can do a lot of good, but the most reliable predictor I've seen in my admittedly unscientific study of educational outcomes is the extent of parental involvement, encouragement, and support in that endeavor. Over and over again, I used to see the same group of several dozen parents at youth football, city soccer league, orchestra concerts, choir rehearsals, PTA events, school open houses, recitals, and so on ad nauseum. We weren't all rich, and some were definitely barely hanging on to the middle class, but we all cared, we all sacrificed, and we all spent whatever time it took to make sure our kids were getting everything they could out of their education.

Screw the fancy buildings and landscaping. Screw the computer labs. Screw the sports complexes, community centers, free school lunches, and teacher in-service days. None of that crap matters. Get the parents involved, make them responsible, and you'll see more success out of our schools. All the programs and educational theories in the world don't keep kids from failing. Families do.

If you think that  America is losing its edge, its competitive spirit, and its position as a leader in innovation:

"Today, the top three software companies in the world are American, so are eight of the top ten. Of the ten fastest-growing, six are American. There are no Chinese or Indian outfits in this lineup...There is no Chinese company among the top 100."

If you think all the smart folks coming here from overseas are heading back home with their newfound knowledge:

Of foreigners granted Ph.D.'s, 92% of Chinese recipients opted to stay in the U.S. after graduation, and 81% of Indians did the same. We are not suffering a brain drain, actually, we appear to be importing highly skilled, intelligent people.

So listen, folks, next time you hear how bad things are, and there's lots of shrieking how, "somebody's got to fix this"...check your pocketbooks. Someone is probably trying to sell you a bill of goods. America still Rocks!

Meltdown by Thomas E. Woods, Jr.

Woods provides an interesting narrative of the meltdown of the real estate and financial markets that happened early this decade, showing that the actions of the federal government, its quasi government agencies, Fannie and Freddy, and the Federal Reserve bear the bulk of the responsibility for the crisis. Additionally, he walks us through previous recessions and depressions usually blamed on the business cycle, showing that they, too, have been primarily caused by government meddling with the economy to suit its own purposes.

I, personally, have been convinced for some time that we haven't had a true free market capitalist economy for over a century, despite the rhetoric about robber barons and monopolies that comes out of history classes I took when I was young. Governments at all levels seem to have figured out how to reward their cronies and punish their enemies through the power of the purse strings, and have been doing so, to the detriment of the middle class taxpayer and the poor for some time now. Anyone who is truly honest and wants to help the little guys gets corrupted rapidly by the system in order to stay in power, and if they don't, they're out of power shortly.

One interesting thing that I found here was the following:

"It turns out that there was a larger percentage increase in adjustable-rate prime mortgages than there was in subprime mortgages, where all the trouble was said to be. This, too, explodes the myth that the mortgage crisis came about because of unscrupulous lenders preying on vulnerable people who for whatever reason couldn't understand the mortgage terms they were agreeing to. If that were the case, how did prime adjustable-rate borrowers get more bamboozled than subprime borrowers?"

Woods includes a great primer for those who haven't previously been taught about what money really is and how it is supposed to work, including the history of how we arrived at our currently unsound fiat currency. There's also a great section on Austrian financial theory, promoted by people like Hayek and von Mises.

Good stuff, perhaps a little dry, and gets you thinking, anyway.

Boomerang: Travels in the New Third World by Michael Lewis

 Some time ago, I read Lewis' The Big Short about the collapse of the sub-prime mortgage industry and subsequent crisis in the U.S. Lewis' research for that book led him overseas, as well, and the results are here in Boomerang. It is eerily reassuring to know that Americans aren't the only crazed fools who believed the real estate and financial markets could only go up, as this book travels from Iceland to Ireland to Greece to Germany in search of the roots of the boom and bust cycle.

In Iceland, a cohort of young people got their college degrees in finance, and somehow managed to convince their countrymen that it was a great idea to exchange the national pastime of commercial fishing (which the Icelanders are quite expert at) for foreign exchange currency trading. Much like the U.S., where I saw nearly all of my former colleagues laid off from manufacturing become mortgage brokers, property managers, and real estate agents, Icelanders quit fishing in droves (or perhaps schools) to indulge in this new sport. When it all collapsed, Iceland's currency traders and banks were suddenly broke.

In Ireland, the situation reminds me of the old story about a mining town after the Gold Rush in the 1850s. A group of Chinese moved to town during the boom to do the laundry for all of the suddenly rich gold prospectors. When the lode was exhausted and the miners all left, the Chinese stayed around and did each other's laundry and all became millionaires. All three major Irish banks either created or were sucked into a real estate boom, and lent huge sums of money to developers and builders, who built and sold commercial and residential projects, selling them to other Irish developers and property managers, for ever increasing sums, which the banks would also finance. When it all collapsed, the banks were broke and the government decided to use tax dollars to bail them out, so that the entire economy wouldn't collapse. It's deja vu all over again.

Greece has a somewhat different situation. It seems that the people there believed that they could indefinitely increase public sector salaries and employment, as well as social services, and as long as they increased taxes accordingly, everything would be fine. Unfortunately, as taxes increased, every citizen seemed to feel it was his duty to avoid paying them by any means possible. Nearly every Greek businessperson cheats on their taxes, mostly by failing to report all cash transactions, and property owners routinely falsify sales documents for parcels of land, or obscure their ownership through shell operations, so they don't have to pay taxes on their real estate. When the government put into place "austerity" measures demanded by the ECB in order to get loans from the EU, the people rioted. Same old story - everyone wants to receive government largesse, as long as someone else is paying for it.

In Germany - dear old solid "the trains run on time" Germany - the extraordinarily productive and thrifty populace are the folks who end up footing the bill for the excesses of the rest of the Eurozone. Their big banks also got suckered into buying the CDOs from the big U.S. brokerage houses which lost the majority of their value when the housing market collapsed. And yet, Germany is considered the most financially sound country in Europe...for the moment.

Lewis also takes a detour into a few California city government antics, which may have some very negative repercussions here in the U.S. before too long.

Always interesting, with bits of snarky humor here and there, finance junkies will enjoy Boomerang.
 Charles Kindleberger's Mania, Panics and Crashes (probably the 1989 version)

Economics in One Lesson by Henry Hazlitt

The title of this book is a bit of a misnomer, as there is far more than one lesson to be learned here; perhaps "in one volume" is a better term. Still as Hazlitt says, "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consist in tracing the consequences of that policy not merely for one group but for all groups." Each of the policies he examines in the book are dissected with those principles in mind.

According to Hazlitt, bad economists are "presenting half-truths. They are speaking only of the immediate effect of a proposed policy or its effect upon a single group." Discovering all of the effects of a particular policy, however, takes a long time, and is often found boring - just doesn't make a good sound byte for politicians. Remember Ross Perot?

The book was first published in 1946, with this edition updated slightly for 1979. It's interesting to note that the same proposed solutions which did not work before are still being touted by modern experts today as the cure-all for our economic ills. Hazlett makes so many good points here, I had post-Its scattered all through the pages. This is the kind of economics text that ought to be required reading in high school for all U.S. students, before they are given the franchise, in my opinion, so that they can recognize the scams being recycled by our current crop of "leaders", across party lines. True increases in the size of the economic "pie" available to all come only through increased productivity, being more creative and efficient with our time and labor.

I've heard this one before, haven't you?

"The more sophisticated advocates of inflation...talk of paper money...as if it were itself a form of wealth that could be created at will on the printing press. They even solemnly discuss a 'multiplier,' by which every dollar printed and spent by the government becomes magically the equivalent of several dollars added to the wealth of the country."

Does this sound familiar?

"They tell us that the government can spend and spend without taxing at all; that it can continue to pile up debt without ever paying it off, because 'we owe it to ourselves.' ... Here I am afraid that we shall have to be dogmatic, and point out that such pleasant dreams in the past have always been shattered by national insolvency or a runaway inflation."

And this is very nearly prophetic, being written prior to Fannie and Freddie guaranteeing nonstandard, improperly documented loans, putting us all on the hook for billions in losses.

"When people risk their own funds they are usually careful in their investigations to determine the adequacy of the assets pledged and the business acumen and honesty of the borrower...But the government almost invariably operates by different standards. The whole argument for its entering the lending business, in fact, is that it will make loans to people who could not get them from private lenders. This is only another way of saying that the government lenders will take risks with other people's money (the taxpayers) that private lenders will not take with their own money."

Could this have any relevance to the Cyprus debacle?

"On the one side are savers automatically, pointlessly, stupidly continuing to save; on the other side are limited 'investment opportunities' that cannot absorb this saving. The result, alas, is stagnation. The only solution, they (the inflationary economists) declare, is for the government to expropriate these stupid and harmful savings and invent its own projects, even if these are only useless ditches or pyramids (or solar power companies?), to use up the money and provide employment."

Hazlett takes on trade protectionism via tariffs, minimum wage laws, subsidies for particular industries, the inflationary tactics of increasing the money supply, government price-fixing, and many more ploys that our government tries to convince us will benefit us all, rather than the constituency of lobbyists pushing for them. There's really nothing new under the sun, folks, they've been selling this cartload of horse manure for a century or two, and none of it works the way they say it will.

"...government policy should be directed, not to imposing more burdensome requirements on employers, but to following policies that encourage profits, that encourage employers to expand, to invest in newer and better machines to increase the productivity of workers..."

Roughly a quarter century ago, at the time this book was last updated, Hazlitt writes the following about the Social Security pyramid scheme:

"No one can say today whether Social Security is really an insurance program or just a complicated and lopsided relief system. The bulk of the present benefit recipients are being assured that they 'earned' and 'paid for' their benefits. Yet no private insurance company could have afforded to pay existing benefit scales out of the 'premiums' actually received...If Social Security is thought of as a relief system, however, it is a very strange one, for those who have already been getting the highest salaries receive the highest dollar benefits...The American Social Security System must stand today as a frightening symbol of the almost inevitable tendency of any national relief, redistribution, or 'insurance' scheme, once established, to run completely out of control."

It's all based on the idea that you can get something for nothing, that there is such a thing as a free lunch, and that Peter isn't hurt when you rob him to pay Paul. But if you look at the long term, wider effects of most government interventions in the economy, rather than merely the immediate payout for a select group (whoever bought that congresscritter), the situation is nearly always worse than if nothing had been done at all.

Read this one and weep - for our future, if we don't learn the lessons of the past.

No, They Can't by John Stossel

 I feel more and more, as I read Stossel's books, that I'm just part of the choir to whom he's preaching, you know? He's nearly as big-L Libertarian as Ron Paul, without nearly the nutty pronouncements, though. About the only things I still disagree with him about are legalizing recreational drugs and same-sex marriage. As a matter of libertarian principles, I understand and believe he has the right of it, but as a practical matter I see some serious consequences to both of these actions - and when Stossel criticizes big government, one of his pet gripes is the government's failure to consider all of the unintended consequences of their laws, policies and regulations.

I finally gave up on placing sticky notes beside the especially piquant passages, as it rapidly became too many to reasonably discuss in a timely review here. I saw a phrase  in a blog online this morning (no idea whom to hat-tip, sorry) that catches the flavor of something that Stossel doesn't explicitly state here - that government should be responsible for "policing" businesses, not trying to control them - and likewise with individuals. There are some things, like fraud, theft, assault, and more serious crimes, that it is the proper business of government to police and prosecute, but when a local, state or federal government instead begins to intrude into matters beyond those in which actual, prove-able harm is caused, it's a slippery slope to Orwellian times.

On a subject near and dear to my heart (and anyone who hangs around me long enough will hear me rant about it) - the shallow nature of what the media feeds us all these days, Stossel talks about how he had an expose prepared about Canadian health care, and how it related to the upcoming legislative battle over Obamacare.

"But then my report was delayed (by ABC). Michael Jackson died, and I was told that 20/20 obviously needed to do the entire hour on that. The following week, 20/20 aired an interview with Michael Jackson's sister. The following weeks, 20/20 covered his drug abuse, his music, his friends, his influence on America, where his money went, and so forth. 20/20 never found the time to run my hour on the downside of Obamacare."

and,

"The same week that the House approved the stimulus plan and jobless claims hit an all-time high, 20/20 devoted our whole show to 'Seduction: Why Him? Why her?'"

It seems far more important for all of our media outlets to keep us updated on the latest celebrity scandal than that we actually be informed about things that truly matter. Don't get me started.

On the subject of whether government can, or cannot, do anything to "fix" the economy, Stossel basically states that the only positive thing it can do is to stay the heck out of the way. Nearly everything else that big government does ends with unforeseen effects - rarely positive. He talks quite a bit about the modern applications contrary to Bastiat's "broken window" theory. The Keynesian economists who seem mostly to be in charge of our economy today think that government spending stimulates the economy, but they - and we - fail to consider what the result of allowing people to make their own decisions about how to spend their money would have been, had it not been taxed away from them to be spent by our all-wise overlords.

A quote I really liked,
"Since government services are funded through the compulsion of taxes, they have no market price. Without market prices, we have no way of knowing the importance that free people place on these services."

On the tragic burst housing bubble,

"At 20/20, at the peak of the boom, I was embarassed to anchor shows that my boss called 'real estate porn.' Porn, because people love to look at elegant houses and fantasize...In one, a promoter gave advice like, 'you can't get rich if you're a renter'... I didn't protest, but I should have."

I never understood, while this was all happening, how people could be convinced that the exponential rise in housing prices could continue indefinitely. Once the average home price exceeded the amount that an average working family could reasonably afford, according to all of the time-tested formula - used by banks for decades - it was only a matter of time for the house of cards to come tumbling down.

The phrase, "you can't get rich if you're a renter" also intrigues me. Having been a homeowner for a couple of decades, myself, I can tell you that your primary residence is not really, in general, a big moneymaker. If...IF...you're invested in real estate as a business, and can buy low and sell high, swooping in to pick up distressed properties, etc., you can probably make money at it, or if you're acquiring rental real estate over the long term, doing all your due diligence, you can make money that way, too. But when you buy a home where you can live and raise your family, a) you're limited as to how easy it is to take advantage of market swings - remember, you still need a place for your family to live when you sell your home, and if its price was up, anything nearby is probably up by the same percentage, so you're going to have to roll your "profits" right back into the new place. And let's not even talk about the true cost of maintenance over the long haul, plus the interest on your mortgage, taxes...

This is not a game for amateurs.

Stossel firmly believes that private industry, especially small businesses, do a far better job of serving the public than do our "public servants."

"They (New Yorkers) are shocked when I tell them that most of our subways were built, not by government, but by private companies...When the private company proposed raising the subway fare to 5 cents, the politicians said, 'Outrageous!' They forbade the increase and took over the subways. They promised to improve service and hold down fares. They did neither. Despite raising the fares to what is now $2.25, they still managed to lose money every year. Taxpayers fund them with billions in subsidies. If New York City had left the trains in private hands, maybe our subway would be more like Hong Kong's clean, efficient, and profitable one.

Yes. The world's only profitable mass transit is privately run."

Another thing that Stossel mentions in passing in a long section on health care, that happens to be another one of my pet rants, is those who confuse or conflate "access to health care" with being able to "afford health care". I won't even get into whether the latter is often a perception problem instead of a real one - though I will mention that I knew lots of young healthy folks who refused the $35 a month employee portion of their health insurance premium offered by a company that I worked for for nearly a decade, because they thought it was too expensive - and these were highly skilled manufacturing workers, not Wal Mart minimum-wagers.

"The truth is, almost al people do get health care, even if they don't have health insurance. Hospitals rarely turn people away; charities pay for care; some individuals pay cash; some doctors forgive bills. I wish people would stop conflating the terms, 'health care,' 'health insurance,' and 'Obamacare.' Reporters ask guests things like, 'Should Congress repeal health care?' I sure don't want anyone's health care repealed."

And in the category of "things that make you say, Hmmm?"

"It is no coincidence that the biggest push for more food regulation came at a time when Congress obsessed about the rising cost of medical care. When government pays for your health care, it will inevitably be drawn into regulating your personal life...Where does it stop?"

On bloated campaign spending,

"It is shameful that leftists let their hatred of corporations lead them to throw free speech under the bus. There is a smarter way to get corporate money out of politics: shrink the state. If government has fewer favors to sell, citizens will spend less money trying to win them." (emphasis mine)

Stossel tears into the educatin mess, and the trillions of dollars that have been thrown away in futile efforts to improve student performance. He feels at least part of the answer is in charter schools. I did a little research on a website - Global Report Card -  that tracks the ranking of every school district in the U.S., with respect to the rest of the world, and found the results very interesting. First, as you might imagine, some of the most wealthy areas of the country have the best schools, though it doesn't appear to necessarily be the result of higher per-pupil spending. I suspect that wealthy professionals tend to have the mobility to migrate to areas where their children's educations are likely to be great, and they also are probably very vocal consumers and actively influence local school boards. The really interesting thing was that in one of the top areas in the country for reading scores (Maricopa County, AZ) four out of five of the top performing schools  were charter schools. That area also appeared in the top 50 for Math quite often. This bears further reading and research to find out exactly what's going on in Phoenix and Tempe, I think.

A quote from the CEO of a very successful charter school.

"I don't do no teacher evaluations. All I do is go into a class, and if the kids ain't working, your ass is fired."

LOL. Short and to the point, if not perfectly grammatical.

The head of a pre-K education advocacy group says,

"We don't want to just focus on IQ scores. We want to look at how children are doing in their social and emotional, their noncognitive development."

Stossel replies, "Give me a break. If the huge government program can't perform the basic (and measurable) educational task of raising math and reading scores, why should we give the central planners more money because they promise to improve the kids' 'emotional development'?"

There's lots of great stuff in this book, and all you libertarians and conservatives out there ought to enjoy the heck out of it.

Broke by Glenn Beck

People either seem to love Glenn Beck, his tv and radio shows, and his writings, or they simply hate him. I find his sense of humor wonderfully sarcastic, and usually enjoy what he has to say in his books, which are perhaps not as dramatic as his shows. I'm definitely a numbers kind of guy, and Beck lays out plenty of numbers in Broke, without it being mind-numbingly overpowering.

For the most part, he remains fairly non-partisan in this book, laying out the historical evidence why NO administration nor congress since shortly after the turn of the eighteenth century has been fiscally responsible. In the early days of the United States, debts incurred by the federal government, primarily in fighting wars, were discharged as quickly as possible, and to be perfectly fair, taxes were often raised to accomplish that goal, but as soon as the debt was paid, the taxes were discontinued, unlike what happens all too often at all levels of government today. Anyone remember when they told us the raise from 3% to 5% sales tax in Idaho was just temporary?

One passage I found interesting:
"...(President) Johnson's God complex led him to choose the bombing targets himself during weekly luncheons - Tuesdays worked best for his schedule - with no military representatives present. Johnson and two civilian aides literally sat and handpicked the targets (for bombing during the Vietnam War)."

Anyone see any parallels today?

Beck spends about two thirds of the book making the case that our government is out of control (especially with regards to spending), and really doesn't distinguish, as more partisan folks might, betweeen entitlement spending and defense spending as to their relative merits or blame for the problem. It seems common sense to me, though I'm not a Nobel prize winning economist by any stretch of the imagination, that a government, like a household or a business, cannot continue to spend more than it takes in, year after year, decade after decade, without paying the piper at some point. The results of our debt problem could be catastrophic for the U.S., and for the world as well.

His prescription for the solution, however logical and necessary it appears to be, will just flat never happen, I'm afraid. The political will doesn't exist and never has to do what must be done to solve the debt crisis, and by the time we are feeling the pain deeply enough in this country to actually vote out the spineless and corrupt politicians we have today and vote in folks who will do what needs to be done, without any consideration for whether they will be re-elected the next term or not, I fear it may be too late.

The biggest part of the solution, Beck says, is threefold:
1) Pass a balanced budget amendment.
2) Pass a term limits amendment.
3) Pass a line item veto amendment.

Do you seriously think any politician in power today has any real interest in doing these things, much less a majority of those politicians? We're hosed.

Read the book if you want to know more, especially about the history of our massive deficit spending.

One thing that struck me, as I was in the early chapters of this book, was triggered by something Beck wrote:

"Americans don't want to be deceived, but we do want hope. We want to know that if we do our part, work hard, play by the rules, live within our means, then things will turn out all right in the end."

I think this is very true. However, there appear to be two dynamically opposed viewpoints in this country today.

The first viewpoint is that if we do all of the things listed above, somehow or other, the government at either a federal, state, or local level, will do something to screw it up. They'll pass a law, regulation, or requirement that trips us up and keeps us from succeeding, or they'll levy a tax, fee or surcharge that destroys our ability to achieve our dreams.

The second viewpoint is that even if we do all of these things, in some manner "The Man" will conspire to keep us down, to show us our place, and to ensure the status quo. Therefore, only the government, in its slow but steady progress, can provide remedy, redress and recompense, and guarantee that we are taken care of, treated fairly, and given a chance.

I think there are certain points where both of these views are true, places where we can compromise, times when we can get closer to real life. I also think that our political class exploits these extremes in their unending grasp for power, and far too many of them profess to believe in one or the other, but their actions in office belie their commitment.

I'm not sure how we get beyond the extremes at the end of the spectrum and find a solution that works to preserve freedom, opportunity and the pursuit of happiness once again, but certainly it can't be through massive financial irresponsibility, can it?

Abundance by Peter H. Diamandis and Steven Kotler

Peter Diamandis is the CEO of the X PRIZE Foundation and Singularity University, and appears to strongly believe that the future is going to be more abundant than most of us believe. He cites the exponential growth in technology as the primary factor in promoting abundance in the areas of Energy, Education, Health Care and Freedom around the globe. He may very well be right, and he certainly offers some well-researched and thought out points in support of his opinions.

According to the authors,

"Today Americans living below the poverty line have electricity, water, flushing toilets, and a refrigerator; 95 percent have a television; 88 percent have a telephone; 71 percent have a car; and 70 percent even have air conditioning...one hundred years ago men like Henry Ford and Cornelius Vanderbilt were among the richest on the planet, but they enjoyed few of these luxuries."

The challenge is to bring the developing nations' people up to similar living standards, while not destroying the planet in the process. The authors believe that finding a way to feed the hungry, provide the poor with energy, clean water and air, and access to health care, is entirely within our reach. Personally, I think that the biggest stumbling blocks to this may be political, as we've seen with all sorts of "top-down" aid programs from the developed nation. Far too much of the help we've sent merely ends up further lining the pockets of dictators and thugs around the world, and seldom enriches those we mean to help.

An interesting bit of information they relate, that I'd never heard of before is called Dunbar's number. Dunbar is an evolutionary anthropologist who examined historical trends and discovered that people tend to self-organize in groups of 150. Dunbar discovered that while we may have thousands of connections with other people, the upper limit of those with whom we are able to meaningfully interact is 150; that's the maximum amount of interpersonal relationships our our brains can process.

"Gossip, in its earliest forms, contained information that was critical to survival because, in clans of 150, what happened to anyone had a direct impact on everyone. But this backfires today. The reason we care so much about what happens to the likes of Lady Gaga is not because her shenanigans will ever impact our lives; rather because our brain doesn't realize there's a difference between rock stars we know about and relatives we know."

Wow! Do you think that spending all of our time watching reality shows and infotainment on TV keeps us from fully developing our relationships with people who are actually part of our lives?

Diamandis and Kotler spend some time debunking various doom and gloom scenarios that we've all worried about.

"Acid rain was the first sign that the facts were not matching the fanfare. Once considered our planet's most dire environmental threat, acid rain develops because burning fossil fuels releases sulfur dioxide and nitrogen oxides into the atmosphere...In 1982 Canada's minister of the environment, John Roberts, summed up what many were thinking, telling Time magazine, 'Acid rain is one of the most devastating forms of pollution imaginable, an insidious malaria of the biosphere.'...But a few decades passed, and he realized that nothing of the sort was happening...the eco-apocalypse predicted in the 1970s never did arise."

A good measure of how much things in general are improving as technology increases is the amount of time spent acquiring the basic necessities of life, as well as a few more advanced resources.

"A rural peasant woman in Malawi spends 35 percent of her time farming food, 33 percent cooking and cleaning, 17 percent fetching clean drinking water, and 5 percent collecting firewood. This leaves only 10 percent of her day for anything else, including finding gainful employment needed to pull her off of this treadmill. Because of all this (science writer) Ridley feels that the best definition of prosperity is simply 'saved time'."

Today, in developed nations, a half second of work at an average wage will give you one hour of light. With a kerosene lamp near the turn of the century, it would have required 15 minutes work. At the turn of the previous century a tallow candle that provided an hour's light would cost six hours work, and 17 centuries BC an hour's light from a sesame oil lamp, fifty hours. Transportation is another example of saved time. In the 1800s the trip from Boston to Chicago took two weeks and cost a month's wages. Now the same trip can be made in two hours and costs a day's wage.

Even if you think things are bad in the developing world, they have some encouraging statistics. In 1995 India only had 4.5 million middle class households, but by 2009, it had 29.4 million. The number of people living on less than a dollar a day has been cut in half since the 1950s. At that rate of decline in the amount of abject poverty, Ridley projects that "absolute poverty" could hit zero percent by 2035.

If you're of the Malthusian bent, however, you may worry that when people in the developing world become more prosperous, at the rate that they reproduce, they will soon consume all of the world's resources, and we will face another catastrophe. Infant mortality rates are extremely high in the developing world, so people simply have more children. If we improve health care, provide clean water and clean air (hundreds of thousands die from breathing wood smoke used to heat their homes and cook each year), it would seem that they will soon breed out of control. But studies show that when mortality rates decrease, so do the reproduction rates. As people live longer lives, they have smaller families, nearly everywhere studied.

There's some great information, also, in this book about various initiatives, not usually initiated or supported by governments, but by private individuals, to provide clean water, cheap energy, and modern health care to the developing world at an affordable cost.

Also, to some extent, simple greed is making the businesses of the world take notice of what the authors call BoP, or Bottom of the Pyramid, consumers. While the majority of BoP consumers live on less than $2 a day, there are approximately 4 billion of them. That's a pretty significant market. Enterprising companies are finding ways to empower these BoP consumers to produce goods and services, thus bettering their lot in life. A researcher studying this phenomenon writes:

"If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepeneurs and value-conscious cosnumers, a whole new world of opportunity will open up."

Many companies around the world are already finding creative ways to lift these people out of poverty. There are also major efforts under way to provide clean drinking water, cheap and abundant energy, and educational opportunities to areas that have lacked these necessities.

This book is a great read. We hear so little in the media about the good things going on around the world, that it's good to counter the constant negativity with some optimism once in a while.

Coming Apart by Charles Murray

Charles Murray, co-author of the controversial The Bell Curve, is back with another humongous pile of statistics and some observations and interpretations about what they all mean. Murray believes that our entire American culture and society has been split into two somewhat isolated segments over the last five decades - those who, by virtue of their genetics and upbringing, go to the elite colleges and universities, and those who do not, who end up being the working class. These two cultures have grown increasingly isolated from one another, and as the first group often ends up in positions of power and responsibility, its lack of comprehension of the other's way of life can lead to many policy problems.

"As the new upper class increasingly consists of people who were born into upper-middle class families and have never lived outside the upper-middle-class bubble, the danger increases that the people who have so much influence on the course of the nation have little direct experience with the lives of ordinary Americans, and make their judgements about what's good for other people based on their own highly atypical lives."

Murray, a libertarian, has an interesting take on the nature of our nation, calling it the "American project".

"The American project consists of the continuing effort, begun with the founding, to demonstrate that human beings can be left free as individuals and families to live their lives as they see fit, coming together voluntarily to solve their joint problems."

One thing he said in the early part of the book was a bit offensive to me,

"The people who read a book on American socioeconomic classes are self-selected for certain traits that put most of you in a position to have observed the new upper class at close hand."

Really, Charles? The only folks who are smart or perceptive enough to read your book are the upper class? How snobbish of you.

Hey, even Bill Gates can say something stupid once in a while. When asked who his biggest competitors in recruiting talent were, he said,

"Software is an IQ business. Microsoft must win the IQ war, or we wont' have a future. I don't worry about Lotus or IBM, because the smartest guys would rather come to work for Microsoft. Our competitors for IQ are investment banks like Goldman Sachs and Morgan Stanley."

Were you talking about the high IQ folks at the investment banks who ruined their companies at the crash of the mortgage bubble, Bill?

Murray also agrees with some of my thoughts about the futility of attempting to "tax the rich."

"Realistically, rolling back the disposable income of the new upper class in a major way is not an option. The American political culture doesn't work that way. The same Congress that passes higher marginal tax rates in this session will quietly pass a host of ways in which income can be sheltered and companies can substitute benefits for cash income in the next session. The new upper class will remain wealthy, and probably continue to get wealthier."

Murray also shows, statistically, that the new upper class isn't, as I'd always assumed, primarily populated by the liberal political class, but is actually fairly evenly split between conservative and liberal. That would seem to make the brawling between political parties in Congress almost a family feud, wouldn't it?

I had an idea about where Murray was going, in the first third of the book, but he suddenly appeared to change course, and began to talk about the founding virtues of our nation. I had assumed he was going to blame the increasing isolation of the new upper class, who live in high concentrations in what he identifies as "superzips", geographical areas filled with people in the 95th percentile or above in terms of education and accomplishment, near the centers of political and economic power, for the troubles we are facing as a nation, but he ended up surprising me.

From Ben Franklin,
"only a virtuous people are capable of freedom. AS nations become more corrupt and vicious, they have more need of masters...The expense of our civil government we have always borne, and can easily bear, because it is small. A virtuous and laborious people may be cheaply governed."

While our founding fathers were often Deists, rather than what we would today call Christian, they believed strongly in the need for morality in society and religion as a bulwark of the freedoms present in our new republic. Murray identifies the founding virtues as industriousness - people's willingness to work hard to better their lives and the lives of those around them, honesty - the predisposition of a people to refrain from crime, to follow the rules, and to deal fairly with others, marriage - fidelity and permanence in our family relationships, and religiousity - the belief that moral values come from a divine, all powerful, omniscient creator of the universe.

As Jefferson writes, "Can the liberties of a nation be thought secure when we have removed their only firm basis, a conviction in the minds of the people that these liberties are the gift of God? That they are not violated but with his wrath?"

On the subject of marriage and child rearing, Murray mentions the fact that, though it is not politically popular to say so, all sociological studies done have shown that "the family structure that produces the best outcomes for children, on average, are two biological parents who remain married. Divorced parents produce the next-best outcomes. Whether the parents remarry or remain single while the children are growing up makes little difference. Never-married women produce the worst outcomes." Presumably, a libertarian has no axe to grind on this issue, as matters of personal behavior are usually left up to each person to determine for themselves, in libertarian philosophy.

Interestingly, Murray and his colleagues' studies find:

"Religious worshippers and people who say religion is very important to them are much more likely than other persons to visit friends, to entertain at home, to attend club meetings, and to belong to sports groups; professional and academic societies; school service groups; youth groups; service clubs; hobby or garden clubs; literary, art discussion and study groups; school fraternities and sororities; farm organizations; political clubs; nationality groups; and other miscellaneous groups."

He points out that there has a been a sharp drop in church attendance over the last fifty years, and that far fewer Americans identify themselves as strongly religious these days. Oddly enough, however, it isn't the new upper class who have grown the least religious, but the lower, working class. This ties in with declines in marriage rates and longevity of marriages among the working class, while marriages appear to be happier and more durable in the superzips. Murray also attributes the apparent rise of fundamentalist Christianity to the decline in overall religiousity - the people who are left, when all those of little faith have fled, are those who have strongly held core beliefs about the nature of God and the bible - the fundamentalists.

Murray spends some time pointing out the rise in crime and the decline in honesty in our culture. I'm certain that doesn't need much proving to anyone who's been paying attention the last few decades. He also discusses labor force participation, and shows that it had already begun a precipitous decline prior to the recent recession, displaying an alarming deterioration of the work ethic that used to drive American productivity, creativity and prosperity.

Murray sees a couple of ways in which we, as a nation, can proceed from here: first, that we adopt a European model and give up on the American project. Unsurprisingly, this option doesn't really appeal to him (or me). He opens with a quote from Jefferson's inaugural address:

"The sum of good government is a state that shall restrain men from injuring one another and shall leave them otherwise free to regulate their own pursuits of industry and improvement."

The advanced welfare state of  Western Europe provides a great deal of personal freedom, and very few economic freedoms. The citizens enjoy a great deal of (illusory, in my opinion) economic security, but have, in limiting the downside, eliminated the upside for the majority. By providing for people's needs while eliminating the possibility of failure, their governments have deprived them of the satisfaction of success, accomplishment, and self-actualization. We are in serious danger of approaching this state soon here.

On the other hand, the American model has traditionally encouraged the pursuit of happiness through self determination, self improvement, hard work to get ahead, and charting one's own destiny - knowing that you have left the world a better place through your efforts, when life is at its end. The new upper class actually practices this, but they have become reluctant to, as Murray says "preach what they practice" for fear of being thought judgemental.

"Liberals in the new upper class continue to support adoption of the European model, as they have for decades. Conservatives in the new upper class still contribute to conservative candidates, but they are no more willing to preach what they practice than are those on the Left. Those in the new upper class who don't care about politics don't mind the drift toward the European model, because paying taxes is a cheap price for a quiet conscience - much cheaper than actually having to get involved in the lives of their fellow citizens."

Ouch! Was that a burn, Charles?

Murray predicts the collapse of the European model, which we may be watching right now with the crisis in Greece and elsewhere.

"The financial bankruptcy is not anything that even the cleverest planner can avoid. As publicly financed benefits grow, so do the populations that find that they need them. The more people who need benefits, the more government bureaucracy is required. The more people who rely on support from government and the larger the government, the fewer the people in the private sector who pay for the benefits and for the apparatus of the state. The larger the number of people who depend on government either for benefits or for their jobs, the larger the constituency for voting for ever-larger government."

Hopefully, he believes, we'll wake up in time to avoid America's economic and cultural bankruptcy.