Friday, September 30, 2011

After the Fire

E.D. Kain wonders what Apple will do in response to the Kindle Fire. When I try to predict what Apple will do, at least as I remember it, I'm usually wrong. That said, I'm going to take a stab at answering.

The Amazon Fire is a " $199 gadget" going up against the $499+ iPad? As I've already suggested, I think that if the Fire shows that there's a significant market for a mini-tablet computer, something that's sized in between the iPad and iPhone, Apple will add such a device to its line-up.
Top this off with Amazon’s cloud storage, the ridiculously cheap Amazon Prime service ($79/year gets you cloud storage, free 2-day shipping, and a bunch of online streaming video) and the new cloud-based Silk web-browser, and the Kindle Fire looks hard to beat.
I would venture that if offering an inexpensive library of streamable content proves to be a huge selling point for the Fire, Apple will offer such a service. If it finds that adding features to iCloud will better position it against a popular competing product, I expect that it will add those features. (So far this doesn't seem like much of a challenge, even with my poor track record.)

Fundamentally, the issue is not so much that "Amazon has a great new device that nobody else has been able to create." It's that Amazon is selling an Amazon-branded device that is comparable to mini-tablets unsuccessfully marketed by other vendors. As Kain observes,
The biggest threat to Apple, however, is the infrastructure that Amazon offers its customers. Few of Apple’s competitors already have a large online offering of music, streaming video, and eBooks. Amazon has that in spades, and a healthy e-Reader business.
That is, unlike the company that produces the Fire, Amazon can offer a tempting array of content to buyers and, for that reason, can expect to sell a considerable number of devices at a price point that not even the manufacturer can match (i.e., Amazon can treat the Fire as a loss leader) while offering a product that is a lot more appealing to the consumer.

But that's not all bad news for Apple.

If Amazon effectively monopolizes the low end of the market, offering tablets at a loss in order to sell subscriptions to Amazon Prime and to push book sales and movie rentals, it will make it considerably more costly and difficult for manufacturers (other than its suppliers) to stay in the tablet game. As much as Amazon may be willing to sacrifice profits for market share, its suppliers will need to turn a profit - not just for R&D, but simply to stay in business, so the price can only go "so low". At some level, Amazon will have to choose between pressuring suppliers for cheaper product and starving them of the capital they need to develop and manufacture quality products. A reduced number of manufacturers would also likely translate into a significantly reduced incentive for Google to produce an OS for tablets, particularly if the bulk of Android users were making purchases through Amazon's app store instead of Google's.

If Amazon were only interested in pushing out its "Prime" content, it could do so through an iPad app. If Amazon were primarily interested in selling tablets, it can do so without having Amazon-branded tablets. The actual competition would appear to be for the most lucrative corner of the market, the sale and rental of music, video and apps, from which the store owner can take a @30% cut.

As much as Apple likes to sell hardware at high margins, I expect that their business plan contemplates a future in which tablet hardware is a commodity item and the "real money" comes from the store, so I really don't think that there's anything in the Fire that would take Apple by surprise.

Fees on Debit Cards

At The Atlantic, David Indiviglio complains that Congress is gouging consumers,
That WSJ article quotes one angry Bank of America customer, saying that she feels the bank is "gouging" her. That's not quite right: she paid this fee before -- she just didn't know it. It was incorporated into the prices of the goods and services that she purchased with her debit card. The fee was then paid to banks by the retailer where she shopped. Now Bank of America is just cutting out the middle man to collect a portion of the fees. This move isn't meant to create new revenue for the bank, but to replace the revenue that Congress forbid them to collect through their old fee policies.
I'm not sure if he's simply being contrarian or if he's not familiar with the terminology, but "gouging" doesn't involve putting money into somebody else's pocket. It's a reference to exploiting a consumer's position in order to sell products above their fair market value. The customer who feels gouged by Bank of America is actually correct - right now she has a lot of choices, and can go to banks that won't charge her similarly high fees on her debit card. If other banks respond by raising their fees the problem isn't Congress - it's oligopoly pricing. Which, come to think of it, is the same thing that led to the legislation that reduced maximum debit card fees from 44 cents per transaction down to 24 cents.

It's fair to observe that, at least from the coverage I've seen Bank of America is not claiming that its debit card operations will cease to be profitable at 24 cents per transaction, or even that they will cease to be immensely profitable. The complaint appears to be that the lower fees will result in lower profits and, implicitly, that the easiest way to make up the shortfall is to slap a new fee on debit cards. It appears to be a problem not of profits versus losses, but of profits versus the banks' feeling of entitlement to windfall profits.

I'm not sure where Indiviglio sits on "free market" issues, but if he's a fan of free markets he should be applauding the rule change. Rather than hiding exorbitant transaction costs in swipe fees, banks have to either forego that portion of their profits or be forthright with their customers. Does Indiviglio believe consumers are better able to make informed choices when fees are hidden from the consumer and a product is falsely depicted as "free"?

Indiviglio lectures,
In a perfect world, customers would end up paying the same amount in fees as they did before through this new approach. The only difference should be that they're paying more money directly and less indirectly. That means that the prices of the goods and services they purchase ought to decline accordingly.

Unfortunately, we don't live in a perfect world. As I pointed out on Wednesday, retailers aren't cutting prices. Instead, they're pocketing the $7 billion or so they'll save in fees. While this could theoretically change in the future, they have indicated that they aren't cutting prices at this time.

The thing is, I don't recall anybody claiming that we live in a perfect world, let alone that we should expect that merchants will lower prices the second that the new fee regime goes into effect. If you think about it, you will realize that not every customer uses a debit card, and that there is no easy way for merchants to translate lower swipe fees into a direct cost savings to debit card users. You will also recognize that most merchants aren't looking at the fees on a per transaction basis, but are looking at the total amount they pay in transaction fees over a given accounting period. A merchant that no longer needs to budget as much money for bank transaction fees might find that money to be better spent on something other than a price cut. Renovations, new locations, servicing debt, pay raises, increased health care costs, or even turning a small profit instead of going near or into the red in a difficult economic environment.... Even in a "perfect world", Indiviglio's claim would be simplistic.

Indiviglio also claims that "customers will end up paying more than they did before once this new law goes into effect", a claim that is only true for those customers whose bank imposes a new fee on debit cards, and who choose to stay with that bank, and who choose to use their debit cards so as to incur the fee. Most consumers won't pay a cent more than they did before, the only difference being that they might be paying with cash, a check, or a credit card instead of their debit card. Indiviglio's whine that "This financial regulation effort will amount to a gift to retailers, courtesy of Congress" is misplaced - he's really talking about a regulation that attempts to end a windfall to major financial institutions at the expense of retailers. (Indiviglio has worked for financial institutions, but it seems reasonable to infer that he has never worked at a retailer that struggles to maintain a reasonable profit margin after a bank takes its swipe fee.)

Indiviglio claims concern for the working poor, "this action by Congress will hurt low- to middle-income Americans more than wealthier Americans". The thing is, so did the old rules. The fact that banks, having been instructed that an old regulatory regime needed to be changed in order to avoid imposing an undue burden on low- to middle-income Americans, find a new way to impose an undue burden on low- to middle-income Americans is not so much a problem with Congress as it is SOP for banks. If gouging is going on, I would rather have it be transparent than take the form of hidden fees and charges.

Wednesday, September 28, 2011

Will Mini-Tablets Carry the Day

Everywhere I look it seems that I'm reading that Amazon has released a major competitor to the iPad, in the form of a small tablet computer that runs a modified version of Android. Amazon is, of course, attempting to grab market share and is reportedly selling these small tablets at a loss. Apple has a very comfortable lead in the tabloid market and sells its products at very healthy margins, but can be expected to respond to any significant competitor. Good stuff for consumers.

But when I read articles that suggest that a smaller, plastic notebook is the first serious competitor to the iPad because "it seriously undercut[s] the iPad in price," I can't help but think that the author has all the sophistication of somebody who would suggest that the Yugo was the first serious competitors to Volvo. No, I'm not suggesting that Amazon's quality is comparable to Yugo's, but you really do have to look at more than "it's a tablet". You should be considering size, quality, components and functionality when comparing products, not just declare, "They both have tires, gas motor, seats - they're cars! Who wouldn't choose the Yugo?"

Rumor has it that Steve Jobs consistently rejected proposals to produce a smaller version of the iPad. I am not going to venture a guess as to whether that was a, "No, it would be a bad product," or, "No, I don't want to increase our costs and divide our market by making a smaller iPad when we're functionally the only game in town," but one way or another Amazon is doing real world market research into the viability of smaller tablet computers. If the "Kindle Fire"<sup>1</sup> sells millions of units, I don't expect Apple to take long to offer a competitively priced mini-iPad.

I don't want a smaller tablet computer - but if I were a Kindle user I might consider the "Fire" if it were time to upgrade. Even there, with the ability to compare products, I would be inclined toward the larger iPad screen, but if cost were a serious issue.... Let's just say, it will be interesting to watch this play out.

What I see in looking at the Fire, and at the expansion of "Amazon Prime" streamed content, is a potential - and the foundation of a plan - to offer serious competition to the iPad, but I see the Fire as being more of a serious attack on the Nook, crossed with a perception that it's a good time to strike at Netflix.
1. Are Amazon's references to fire in relation to its book readers part of a marketing strategy? For me, they evoke Fahrenheit 451, but I don't think that's the marketing message Amazon intends.

Monday, September 19, 2011

What's Going On With Netflix

I read today that I probably have an email, buried somewhere in my inbox, telling me that Netflix is cutting itself in half.
For those of you just catching up, Netflix CEO Reed Hastings sent out an email early this morning announcing that the DVD and Internet Streaming services in the Netflix plan would be split off into two separate companies. Netflix will now be all streaming, while DVD’s will be delivered via a new company called Qwikster.
(The changes are scheduled to occur on April 1? Whose idea was that?)

Okay... So I subscribed to Netflix to get DVD's, they added on a streaming service "whether I wanted it or not," revised their pricing to make it less appealing (IMHO) to continue to get DVD's, and are now telling me that if I want what I purchased from them to begin with I will have to do so through the new company? To me, this smacks of a company telling consumers, "Don't worry about what you think you want - we know what you really want." No, you actually don't.

Across the Internet, I see that all's not well at Netflix. Their stock market valuation is half of it was at its July peak, and they're expecting to lose about a million subscribers over the short term. I suspect that the change has a lot to do with their vision of a future in which streaming dominates the market, and that they perceive their continued DVD offerings as complicating their anticipated business model, both in their pricing model and in their efforts to obtain content.

Right now, I don't find the streamable content on Netflix to be particularly compelling, but they have quite a few kids' TV shows and movies such that there's always something that can entertain my daughter in a pinch. I occasionally scan through their streaming options, including the films available in my queue, and typically find that the most compelling content is either stuff I've seen or falls into the broad category of, "That looks interesting... Maybe I'll watch it some other day."

What do I expect from the "new" Netflix? I expect that they'll offer a basic streamed subscription and premium streamed content. I expect that they'll offer pay per view choices that, unlike their DVD service, will be able to offer movies for viewing the same day they're available through other pay per view providers. Why spin off the DVD side? Because you don't really want to have your customers see in their queue that a movie will be available starting in three weeks, at which time they will have a "long wait" before it is mailed to them, if you're going to be offering the same movie by instant streaming for $3.99.

I expect that the past - once Netflix's entire business model - is being pushed into the new company for two reasons: First, all of Netflix's existing customers will be subscribers to the new all-streaming service and, second, the company sees the DVD business as part of the past. Spin it off and let it turn into a boutique-level service on somebody else's watch.

What Governments Can and Cannot Do

I recognize that it's difficult for a lot of editorial columnists to come up with ideas for their biweekly columns, and that it's anything but unusual to see a weak idea inflated to @800 words by nothing more than hot air, but you would think at some point their employer might say, "Look, if that's the best you can do maybe you should only be writing one column a week, or one a month."

But enough of that. Let's move on to a completely unrelated subject, David Brooks' thoughts on the "power of government". David Brooks opens by telling us that the government of Israel periodically appoints committees to revise public school curricula, that most of the committees don't do their jobs, and the few who belatedly complete their work may find that the government doesn't care about their proposals. To me, that suggests a government that's interested in looking like it's doing something about a problem, real or perceived, but doesn't actually care about taking action. You can find plenty of comparable examples from U.S. school districts and universities. For that matter, you can find similar examples in the form of reports and analyses from inside private businesses. The lesson Brooks draws?
Most people overrate their own abilities and exaggerate their capacity to shape the future. That’s fine. Optimistic people rise in this world. The problem comes when these optimists don’t look at themselves objectively from the outside.
To me, oddly enough, that sounds a lot like a personality profile for a typical nationally syndicated columnist.

Brooks attempts to relate the lessons of failed high school curriculum committees to the world in general:

The planning fallacy is failing to think realistically about where you fit in the distribution of people like you.... Over the past three years, the United States has been committing the planning fallacy on stilts. The world economy has been slammed by a financial crisis. Countries that are afflicted with these crises typically experience several years of high unemployment. They go deep into debt to end the stagnation, but the turnaround takes a while
So, according to David Brooks, history dictates that the government should engage in a lot of stimulus spending to ease the country through its financial problems, worry about how to lower unemployment and misery, not to worry too much about deficit spending during the time of crisis, and that eventually the country will pull through. Reading that alone, you might think he's finally started to read Paul Krugman's columns. But, alas, agree or disagree, that's the last coherent thought in his editorial.
The Democrats, besotted by the myth that the New Deal ended the Great Depression, have consistently overestimated their ability to turn the economy around. They regard the Greek crackup as a freakish, unlucky break, even though this sort of thing is a typical feature of a financial crisis.
Brooks just got through telling us that part of the history of this type of crisis is that countries will "go deep into debt to end the stagnation". Apparently he now believes that can be done without actually spending any money? In one paragraph he embraces the "myth" and in almost the next attacks the Democratic Party for agreeing with him?

More than that, other than hyperbole, what does Greece have to do with the economic problems of the U.S. economy. You don't have to look at Greece's situation for very long to see significant differences between their crisis and ours. Their government overextended itself to the point that it cannot service its debt. Our government has done what Brooks suggests to be the right thing by going "into debt to end the stagnation", but to the extent that we have a deficit crisis it's a crisis of will - a significant faction of the Democratic party and the overwhelming majority of Republicans won't raise taxes to pay our nation's bills. We could go a long way toward fiscal sanity simply by ending the Bush Tax cuts - the ones that were scheduled by the Republican Party to expire. The Republican Party won't let that happen, because the richest Americans (who are doing very well, thank you very much) would experience a modest tax increase.

As for the Democratic Party's supposed overestimation of its "ability to turn the economy around", it's only the Democrats who have embraced the notion that the government can quickly and easily fix an economic catastrophe? Then, pray tell, which of the candidates for the Republican nomination is singing a different tune and telling us, "No, don't blame Obama or the Democrats - the government is pretty powerless and we just have to wait this thing out"? Which past Republican President has shrugged off economic growth and argued, "It's just the business cycle - I don't deserve any credit"?
Republicans, who should know better, also have an inflated sense of the power of government. In the presidential debates, Rick Perry, Mitt Romney and Jon Huntsman argue about which one oversaw the most job creation during his term as governor, as if governors have an immediate and definable impact on employers’ hiring decisions.
In other words, Brooks is looking at equivalent rhetoric from politicians, "Everything good that happens from the day I'm sworn into office is my accomplishment, everything bad is the other party's fault," and imagining (or pretending) that it reflects deep and meaningful differences between the parties.

Brooks' attempt at a takeaway is that wise politicians should
...make the distinction between discrete good and systemic good. When you are in the grip of a big, complex mess, you have the power to do discrete good [such as paving roads or hiring teachers] but probably not systemic good [transforming the whole situation]....
[Their] discrete goods might contribute to an overall turnaround, but that turnaround will be beyond your comprehension and control. 
But when the crisis is large enough it can only be solved through large-scale government intervention. If Brooks dismisses the New Deal as contributing to the end of the Great Depression, perhaps he noticed the contribution of WWII? A huge government response to a huge problem. Similarly, whether or not you believe that the U.S. government bailout of the financial or auto industries was a good idea, Brooks' example of Greece is one in which but for a huge intervention by Eurozone nations, Greece would likely have already defaulted on its debt.

If Brooks is taking a big picture view, perhaps he's thinking, "Yes, and the suffering may have been a lot worse in the short-term, but five, ten, twenty years down the line the world won't look much different," he has a point. But that is not an argument that, when faced with unprecedented crises, a government cannot effect a systemic good. Would Brooks have allowed Greece to default? Would Brooks have allowed Ford and G.M. to go into liquidation? Would he have sat on the sidelines and watched as the world's largest banking institutions and insurance companies went into receivership? Does he believe that the outcome, or level of suffering, would be the same no matter which path the involved governments chose?

Brooks closes with the assertion,
Over the past decades, Americans have developed an absurd view of the power of government. Many voters seem to think that government has the power to protect them from the consequences of their sins. Then they get angry and cynical when it turns out that it can’t.
What does that claim have to do with anything that preceded it? (I would love to hear Brooks share a few examples, as it's usually his party of choice that's keen on regulating human behavior.)

Wednesday, September 14, 2011

Capitalism... Bad?

And David Brooks calls himself a Republican?

In "yet another 'kids these days'" editorial, Brooks complains that "kids these days" don't have a strong sense of moral virtue:
Rejecting blind deference to authority, many of the young people have gone off to the other extreme: “I would do what I thought made me happy or how I felt. I have no other way of knowing what to do but how I internally feel.”...

Smith and company found an atmosphere of extreme moral individualism — of relativism and nonjudgmentalism. Again, this doesn’t mean that America’s young people are immoral. Far from it. But, Smith and company emphasize, they have not been given the resources — by schools, institutions and families — to cultivate their moral intuitions, to think more broadly about moral obligations, to check behaviors that may be degrading. In this way, the study says more about adult America than youthful America.
Smith and company are stunned, for example, that the interviewees were so completely untroubled by rabid consumerism.
 The effective Republican reaction to Carter's "malaise" speech was to kick of an orgy of consumerism that propelled the U.S. economy from the Reagan era through the Great Recession. Dick Cheney: "Conservation may be a sign of personal virtue but it is not a sufficient basis for a sound, comprehensive energy policy"; "Deficits don't matter". George W. Bush on reaction to 9/11: "I ask your continued participation and confidence in the American economy". Keep shopping, don't conserve, don't worry about deficits, don't worry about the future. Some of that "morality" got internalized by the kids who grew up under the Bush/Cheney brand of Republicanism? Go figure.

When Brooks claims, "now more people are led to assume that the free-floating individual is the essential moral unit" or "Morality was once revealed, inherited and shared, but now it’s thought of as something that emerges in the privacy of your own heart", is he talking about today's young people or the 1960's? His observations seem remarkably... generic.

There are a few obvious problems with Brooks' reasoning:
  1. Complaining that kids these days are somehow different from kids in the past only works if you present a point of comparison. "In 2008 kids were surveyed and they thought X" is a commentary on what kids thought in 2008, not how the thinking of young people has changed over time. The authors quoted by Brooks complain "that sturdy virtues are being diluted into shallow values", leading Brooks to opine, " Many of these shortcomings will sort themselves out as these youngsters get married, have kids, enter a profession or fit into more clearly defined social roles." So maybe even Brooks recognizes that nothing is different.
  2. The zeitgeist reflected by the kids, which does seem to echo the moral philosophy of the Bush/Cheney years, is not necessarily worse than the more structured, institutionalized moralities that Brooks seems to favor.

  3. When a "kids these days" author complains about "an atmosphere of extreme moral individualism — of relativism and nonjudgmentalism." it usually actually means, "The kids aren't bothered by stuff that bothers me," and possibly also, "They're bothered by things that don't bother me."
Are "kids these days" really worse than the car-obsessed youth of the 50's, the free love generation of the 60's, the drug-addled youth of the 70's, the selfish youth of the 80's.... We have caricatures for each generation of kids that are going to ruin the future, and yet somehow (as Brooks, to his credit, implicitly recognizes) they grow up.

Monday, September 12, 2011

Better Feet Than Brain....

Glenn Reynolds presents a... curious ad hominem attack:
Everybody's angry, to judge from my email, about Paul Krugman’s typo-burdened 9/11 screed. Don’t be angry. Understand it for what it is, an admission of impotence from a sad and irrelevant little man. Things haven’t gone the way he wanted lately, his messiah has feet of clay — hell, forget the “feet” part, the clay goes at least waist-high — and it seems likely he’ll have even less reason to like the coming decade than the last, and he’ll certainly have even less influence than he’s had.
What caused Reynolds to get his knickers in such a twist? Krugman's assertion,
The atrocity should have been a unifying event, but instead it became a wedge issue. Fake heroes like Bernie Kerik, Rudy Giuliani, and, yes, George W. Bush raced to cash in on the horror. And then the attack was used to justify an unrelated war the neocons wanted to fight, for all the wrong reasons.
Reynolds could attempt to rehabilitate the reputations of Kerik, Giuliani or G.W., but perhaps that would take too much effort - perhaps he agrees that his heroes have fallen. Whatever his reason, he chooses to sneer, "Your hero fell, as well", painting President Obama as Krugman's messiah with "feet of clay". How many seconds would you have to spend, actually reading Krugman's columns or blog, to recognize the flaw in Reynolds' argument?

I suspect that Reynolds never reads Krugman, and his logic goes something like this:
1. I don't like President Obama.
2. I don't like Paul Krugman.
3. Therefore Paul Krugman must like President Obama.
But for those who read Krugman, who saw him question and challenge Obama during the primary campaign that led to his nomination, and who have seen him challenge the Obama Administration from day one on its economic agenda and legislative compromises, the notion that Krugman worships Obama is beyond ludicrous. It's almost as if Reynolds is trying to embarrass himself.

My prediction: The overwhelming majority of Reynolds' readers won't care. They like his vitriol and, as with Reynolds in his screed against Krugman, don't actually care about facts or accuracy. They, like Reynolds, would rather idolize those who happily exploit a national tragedy than call them out.

Sunday, September 11, 2011

College Admission Essays are Unfair to Boys?

Via Joanne Jacobs, I read this prattle from Pajamas Media blogger "Doctor Helen". The author recounts an episode from a book in which a father describes how difficult it was for his son to write an essay that displayed any form of personal growth or development, finally settling on telling the story of completing a swimming test at camp that the other campers had failed.
But his father knew the truth: “which was the masculine truth. He didn’t remember the race because it proved the timeless value of persistence. He remembered the victory because it was a victory: he had competed against this classmates, friends and rivals alike, and beaten them soundly and undeniably, and earned the right to a sack dance in the end zone. He knew he couldn’t say this, though, and I knew he was right.”
So let me see if I understand this: The fact that a high school graduate cannot recall a single experience in his life that resulted in character growth, and the fact that his father says, "I can't think of one either, perhaps you should make something up," reflects a problem with the college?

The author's conclusion:
And that pretty much sums it up for the rest of college. Trying to please a bunch of people who care more about a PC stance than critically thinking with passion. It’s no wonder that boys and men are bypassing college.
Is there any evidence whatsoever that boys and men aren't going to college because they are put off by an occasional college demanding personal essays with applications for admission, or because they're afraid of the "PC" bogeyman? (But then, who cares about the facts when it's more fun to bang a drum, right?) I'm not going to read the book to find out, but I don't think for a second that the son's reaction to choosing to prevaricate on his admissions essay was, "Well, darn it then, I'm not going to college."

If you have experienced so little personal growth over the course of your life that your "personal essay" is a work of fiction, go ahead and submit your work of fiction. But if you later want to whine that it was unfair to request either an essay or to expect that over the course of a lifetime you would have had at least one experience you could truthfully recount, don't expect to cry on my shoulder.

What's the principal reason people don't attend college or drop out? Cost. What factors may play a role in why more young women attend college out of high school than young men? Young men are more likely to drop out of high school, join the military, or go to jail or prison. Also, as most academically oriented young men can attest and as the "swim test" example from above suggests, our society doesn't do much to encourage and reward academic achievement by high school males.

Friday, September 09, 2011

Democrats vs. Republicans - a Thought Experiment

Imagine that instead of having two independent political parties, competing with each other to win elections, we had two parties in active conspiracy: Defining roles for each other in private, and scheming to distract the public with sideshow issues while collaborating to effect a massive wealth redistribution for the benefit of the nation's wealthiest individuals and corporations.

What would they do differently?

Social Security and Tax Increases

If you asked Robert Reich, "Do you believe Social Security should be a form of insurance or a social welfare program," this editorial suggests that his answer would be "yes". That's not entirely unreasonable, given that Social Security does have aspects of both: It's an insurance program for workers, helping in the event of disability and providing a return on money paid into the system that's based in part upon the amount you pay in. But it's also a social welfare program that provides a much better return to workers at the low end of the income scale than those who make the largest contributions.

Reich proposes that Social Security can be made solvent for the longer term, as Reich proposes, by increasing the ceiling for payroll taxes from $106,800 to $180,000. But beyond economic viability, the taxpayers who would be hit hardest by that increase are among those whose support is needed in order to ensure Social Security's long-term political viability. The more money you take from higher wage earners to pay for Social Security, the less appealing it becomes to them.  And while few cry bitter tears for households earning enough to be hit by that increase, it is fair to observe that it would be yet another example of tax policy that has no appreciable impact on the wealthy but disproportionately affects working professionals.

My concern with this type of proposal remains that if you shift public perception of Social Security away from that of a program that guarantees a basic safety net to all workers, and toward "just another welfare program," you'll undermine support for the program and thereby upset its long-term political viability. Reich should consider for a moment that, even though every commentator from left to right found the metaphor to be inane, the New York Times treated as serious the question, "Is Social Security a Ponzi Scheme?"

What about something other than a tax increase? What if, for example, we were to implement policies that buttress and expand the middle class? Frankly if we've given up on that, we are admitting that our economy has systemic problems that cast doubt on whether even raising the payroll tax ceiling will create the sustainability that Reich predicts.

Regulation Through Deregulation

Shorter David Bernstein: The best and fastest means of obtaining a fair, worker-friendly employment environment is to eliminate wage, hour and safety protections for workers.

Really - trust the market. Employers will offer better worker conditions on their own, and if you think otherwise you're being tricked by "vague recollections" from your "fourth grade social studies class". (Ah, memories of fourth grade....)

If your reaction is, "Why, then, do employers fight unions? Why, for that matter, aren't they offering the same or better wages, hours and working conditions available in union states when they open factories in 'right to work' states? Why do they open plants overseas to avoid offering decent wages, meeting workplace safety standards that are expected in the developed world, or abiding by environmental laws? Why does the U.S., with some of the lowest legal protections for workers, not have wages and job benefits that meet or exceed those typically offered in Europe?", I suggest that you start listening to Bernstein and stop believing your lying eyes.

What, you say? I'm being a bit unfair to Bernstein because his argument isn't, "In the absence of labor regulation things will automatically get better in the workplace," and he instead suggests, "all of these things improved because Americans got richer, with American workers becoming more and more productive"? What happens if you so much as scratch the surface of that explanation: Does Bernstein deny that workers have continued to become more productive in recent decades? Does he deny that corporate profits and executive compensation are extraordinary? Does he deny that, even through this extraordinary recession, the rich of this country are richer than ever? It's simply not the case that "becoming more and more productive" or "Americans are getting richer" translates into better wages and working conditions.

What you actually see is that when manufacturers have identified cheaper alternatives, they have run with them. Avoid union wages by locating your plant in a "right-to-work" state. Avoid the environmental laws, safety standards and wages demanded by workers in a "right-to-work" state by opening a plant in Mexico. Mexican workers want too much, and Mexico is tired of your polluting the local drinking water? Open a plant in Southeast Asia. Oops - Thai workers have too many opportunities and want higher wages? How's Cambodia... too unstable? Then it's off to China!

What does Bernstein think when companies with staggering profits treat their workers in those foreign nations like chattel, don't worry about child labor or working conditions unless they get negative media coverage, and hop from nation to nation chasing the lowest wages and fewest job protections? Clearly he's not thinking, "Those nations should have better protections for their workers" - after all, his thesis is that the market should magically correct the situation. He may be thinking, "Things are getting better for those workers, so that they can demand better wages, hours and working conditions," but that's only true to the extent that the employer won't relocate, and it's a thin defense of his thesis that sweatshop conditions have marginally improved - to the point, say, that workers get a bathroom break during their shift and an extra ten cents per hour, but not to the point that a highly profitable foreign corporation is going to relocate the sweatshop. It's possible that Bernstein simply doesn't care if western living standards are supported by the exploitation of workers in the developed world, but that's not a defense of his thesis. Bernstein also complains,
Labor laws can outlaw some outlier abusive practices, and help some workers in the short run, though usually at the expense of others. But, as rule, they don’t raise productivity and societal wealth, which is what ultimately leads to a better deal for workers.
The first question, then, is which "outlier abusive practices" does Bernstein believe will never again be practiced by a U.S. corporation? After all, if a company is willing to abuse its workers in China, the only thing that's keeping it from doing the same here is that it would be violating the law or might be affected by negative publicity. Hm. We seem to have zero outliers left. You next have to ask why, if labor laws and unionization had nothing to do with it, their heyday is associated with the explosive growth of the middle class and an unprecedented rise in the standard of living. No, I don't want to play the "correlation equals causation" game, but Bernstein is explicitly playing that game - he says the middle class would have risen anyway because "Americans got richer, with American workers becoming more and more productive", so under his thesis why isn't the middle class continuing to rise? Why is the middle class collapsing?

Yes, of course labor laws benefit some (workers) at the expense of others (owners, investors, and even consumers). As most people understand, it's a trade-off and it's difficult to achieve balance. Bernstein's brand of libertarianism rests upon the dogma that the markets always work (or work better than anything else in terms of the allocation of wealth), and thus that anything that restricts the markets is wrong. What are the odds that somebody who holds that type of view has ever had to worry about whether he would be able to pay the rent or buy groceries, or held a job at which he's had to get his hands dirty? Looking at all of human history, throughout which the treatment of workers has largely been both unregulated and abysmal, Bernstein points to a few decades, ignores other contributing factors and more recent history, and argues, "See? The market takes care of everything!"

Interpol - Timely as Ever

"Interpol issues warrant for Qaddafi's arrest" - it's a good thing that Gadhafi is such a minor thug with no history of criminality, or one might be left with the impression that Interpol's priorities are somewhat skewed.

Wednesday, September 07, 2011

Where the Jobs... Aren't

The full analysis is more complicated, involving tradable jobs, and higher and lower value-added jobs, but Seth Godin highlights an important statistic for U.S. job creation:
Nobel-prize winning economist Michael Spence makes this really clear: there are tradable jobs (making things that could be made somewhere else, like building cars, designing chairs and answering the phone) and non-tradable jobs (like mowing the lawn or cooking burgers). Is there any question that the first kind of job is worth keeping in our economy? Alas, Spence reports that from 1990 to 2008, the US economy added only 600,000 tradable jobs.
I can't say that it's surprising that when you look at the production of goods you'll find that manufacturers seek out the lowest-cost means of production. Domestically that means automation and other efforts that can reduce the cost of production and, of course, outsourcing. As Godin puts it,
If you do a job where someone tells you exactly what to do, they will find someone cheaper than you to do it. And yet our schools are churning out kids who are stuck looking for jobs where the boss tells them exactly what to do.
Godin is correct to question the approach taken by schools, and a model of education that still seems largely designed to create quiet, industrious workers for the factory floor, but re-inventing schools will not solve this problem. Even if we could imagine a scenario in which K-12 education primed U.S. school children for a high tech, competitive, innovative, entrepreneurial, creative work environment, there simply aren't enough jobs that require 21st century post-industrial skill set. That is to say, employment focused on invention, design and creativity has to at some level be attached to a product or service. An economy, no matter how large or robust, has limits in its capacity to sell and consume products and services, and the economy will continue to require large numbers of low-level workers to produce the goods and deliver the services. Rather than creating a society in which most people have satisfying, creative jobs and all have the opportunity for such jobs, I suspect that as our economy moves closer to Godin's vision we'll see a continued squeeze on the middle class. But Godin's not offering a solution - he's sharing a warning:
The post-industrial revolution is here. Do you care enough to teach your kids to take advantage of it?
Get your kids the education and tools they need for the future, because we're not going back.

Fabricated Evidence in Criminal Cases

Although I offer this in no way as a defense of prosecutorial or police misconduct, it remains my impression that most police officers and prosecutors who engage in misconduct in order to convict a defendant do so under the belief that the defendant is guilty. (That can be a pretty low internal standard - I've met prosecutors for whom there is no meaningful distinction between "charged" and "guilty", under the rationalization "We wouldn't charge somebody who was innocent.") No matter how sincere the belief, though, it's unacceptable conduct. The point of the prosecution and trial is to prove that the evidence is sufficient - if it's not, the prosecutor should be trying to figure out how to find more bona fide evidence or how to build a better case.

Whatever the motive, there are degrees of police prosecutorial misconduct - planting evidence, intentionally "losing" evidence, tampering with evidence, coercing witnesses, rewarding witnesses, suppressing exculpatory evidence or information.... I cannot place them in an order of "least serious to most serious" as each act can potentially have a dramatically different impact depending upon the full facts of the case.

When I've encountered prosecutorial misconduct, my thoughts have ranged from, "Were you that desperate for a conviction," to "You knew that and you still thought the defendant should be tried for this offense". But in reading about supposed bite mark specialist Michael West, it is difficult for me to imagine that many of the prosecutors who utilized his service, and as his "reputation" grew, perhaps most, had a pretty good idea that they could count on him to fabricate evidence to convict people against whom they had no viable case. And we're talking about life sentences, even death sentences, resulting from West's fraud and fabrication.

When a medical examiner performs and documents an autopsy and finds no evidence of a bite mark, and the prosecutor brings in a "specialist" who not only manages to find bite marks but finds obvious marks that are not present in prior photographs and video, it's difficult for me to imagine that everybody in the prosecution doesn't know exactly what's going on.