April 2004 Archives

Senator George Allen fights the good fight as he sponsors the Internet Tax Nondiscrimination Act and advocates for it in this piece: The World Wide (Tax) Web. Excerpt:

The deployment of broadband is an essential component for small business's ability to compete, especially in rural areas. As these businesses grow, they will offer more prosperity and opportunities for young people to obtain jobs in their home communities rather than having to move away to find work. New taxation would cost millions of Americans everywhere jobs and opportunities. It would make our monthly Internet-service bill look like our telephone bills, with multitudes of state and local taxes.

A very eloquent description by Joseph Epstein the "unconstrained" and "constrained" visions (as Thomas Sowell describes them in his "Conflict of Visions") in this opinion piece entitled: "Cheer Up, Conservatives." These two fundamentally different visions of human nature continue to divide us politically, as they have for centuries. Excerpt:

The first time I encountered valet parking at a private residence was a number of years ago at the home of a multi-millionaire in Los Angeles. His house, in Brentwood, was lavish and elegantly furnished. The paintings upon his walls, the sculptures in his garden, I was told by an art critic who was with me that evening, could not have been worth less than $15 million.

The man who lived in all this splendor turned out to be tall, with a discouraged slouch and a grim, almost stricken, look on his face. His politics, I believe, put the bend in his back, the permanent grimace on his face. Although the sumptuous trappings of his quotidian life gave no clue to this, he was, lifelong, a man of the Left. As such he had certain expectations of the world; and the world -- shocking to report -- let him down daily. He was entitled to, if perhaps not going so far as to say he deserved, his sour look, his grumpy disposition, the invisible but for him quite real black flags that hung over and doubtless spoiled each of his Degas, Henry Moores, Motherwells, Frankenthalers.

But a conservative brings no such expectations to his life. He takes the world as given, a place always full of sin, silliness, and a rich surplus of stupidity -- but also much goodness and mirth. The conservative fancies he views the world, as the philosophers say, as in itself it really is. Utopia is not his idea of a good time; it is not, for him, an idea at all but an illusion. If he is sensible, he understands the need to alter social arrangements that are cruel or grossly unfair. But the installation of perfection in a patently permanently imperfect world is not something he has signed on to deliver. This in itself ought to bring a smile to his face.

Holman Jenkins provides this wonderful review of basic economics while tackling the drug re-importation issue. I wish more people understood this and were less vulnerable to demagoguery.

What can it possibly mean to call an industry "greedy"? Drug companies are said to be an unconscionable exception because their profits are comparatively high, 15.4%, when measured as a percentage of sales. But here's a question: Grocery stores have a measly return on sales of 1.4%, and liquor stores an even measlier 1%. So why does anybody invest in these businesses rather than the drug business? Last time we looked, the grocery industry and liquor stores still existed.

Such indictments of the drug industry overlook the fact that profits are a cost -- the cost of a company's capital. Nobody pays back their investors more than they are obligated to. By the same token, if your capital costs are 15.4% of your total costs, profits had better be 15.4% of your revenues or you won't be in business long. Measures of profitability, in short, tell you a lot more about an industry's need for capital than about its "greed."

But, critics moan, don't drug companies spend more on advertising than they do on research and development, and therefore . . . what exactly? The critics never say, but apparently they suspect that the availability of money to throw away on advertising is evidence of excess profitability.

Wrong. Companies spend money on advertising because it generates profits, not because it consumes them. You've spent 10 years and $500 million to develop a new product and haven't rung up your first sale yet. What could be a smarter investment than spending a few dollars more to let the world know the product exists? Advertising actually makes companies more willing to invest in R&D. Capital can be earned back faster; fixed costs can be spread over a larger number of customers, allowing each to be charged a lower price.

Interesting, though brief, overview of classical liberalism in this review of Richard Epstein and his new book, "Skepticism and Freedom: A Modern Case for Classical Liberalism." Excerpt:

This hard-nosed political philosophy—first formulated by John Locke in response to Thomas Hobbes, and later Adam Smith; used by Jefferson and Madison to inform the U.S. Constitution; and embracing aspects of libertarian theory and laissez faire economics—continues to offer “the best guide to human behavior” and social organization, said Epstein. “Classical liberalism requires us to maintain the distinction between liberty and coercion: to advance the former while constraining the latter,” he said.

“If we start with a clear vision of human motivation and cognitive limitations,” Epstein said, “we shall gravitate in all matters great and small to a classical liberal position that protects autonomy, property, and exchange of labor and possessions within the framework of limited government. A government,” he emphasized, “that directs its power against coercion and monopoly and calls it a day.”

Very interesting special report from BusinessWeek Online: Technology Special Report. I do think there is cause for concern, but the proper response is not protectionism, but rather liberalization of restrictions on business in this country (e.g. taxes, regulations, legal and healthcare costs, education reform, telecom reform, curbing labor restrictions, etc.) to help us better compete.

Finally, Google files IPO papers | CNET News.com. "Internet search leader Google filed to go public on Thursday, seeking to raise $2.7 billion in an unusual auction-style offering that will give the founders rare control over the company."

Here's their S1.

The worst in patronizing politicking: "California state senator Liz Figueroa has threatened to write legislation banning Google's service unless changes are made." Folks, if you don't like GMail’s TOS then don't use it. For a politician to simply remove that choice is obviously self-serving grandstanding and the worst in political pandering. Cato was too kind to her Excerpt:

Regardless of the merits of Google's approach, legislation would be counterproductive. Without strong revenues from its targeted ads, it's unlikely that Google could afford to offer each user a gigabyte of storage space, one of GMail's main selling points. They would be forced to trim the service back, and perhaps abandon the idea altogether. Sen. Figueroa might claim the mantle of consumer protection, but consumers don't benefit from having choices taken away from them.

Google has been candid about its business model, and users should be allowed to choose for themselves whether they're comfortable with Google's terms of service. If consumers think a free gigabyte of storage space is worth the risk to their privacy, they should be free to make that choice, no matter what politicians in Sacramento or Washington think about it.

Probably both--either way it is a deeply flawed insitution. See this piece -- Cause for replacement -- in The Washington Times. Excerpt:

In light of Kofi Annan's failure to stop U.N. corruption in the supposedly humanitarian oil-for-food program, how can the Bush administration even think of entrusting a future democratic Iraq to U.N. supervision? And how can Mr. Annan even want to stay on as U.N. secretary-general of this corrupted organization? Claudia Rossett's spectacular expose in the current Commentary Magazine headlines the scandal:

"The oil-for-food scam: What did Kofi Annan know, and when did he know it?"

As Miss Rossett writes:

"Annan's studied bewilderment is itself an indictment not only of his person but of the system he heads." ... "We are left to contemplate a U.N. system that has engendered a secretary-general either so dishonest that he should be dismissed or so incompetent that he is truly dangerous and should be dismissed."

Great to see Tom Hazlett getting some Article well deserved coverage for being right, early. Excerpt:

Two years ago, Tom Hazlett shocked and amused broadcasters by telling the government to abolish broadcast TV. The notion, circulated in his Financial Times column, was so radical that the economist's suggestion was dismissed as Ivory Tower ranting.

Nobody's laughing now.

The feds aren't doing away with free over-the-air television. But the philosophy underlying Hazlett's thesis -- that making room on the airwaves for new wireless communications is more important to the economy and society than protecting free TV -- is gaining cachet. FCC staffers are trying to sell Congress a DTV-transition plan that puts a priority on reclaiming old analog TV channels, not on ensuring that TV viewers get HD pictures or other benefits of digital service. And that would trigger broadcasters' reversal of fortune.

Some more examples of hostility to business among many in California, provided by Thomas Sowell in Criminalizing business: Part II. Excerpts:

A recent column in the San Francisco Chronicle vividly illustrates the anti-business mindset of many Californians. It dealt with the fact that Wal-Mart lost a referendum to allow the retailer to put a store in Inglewood, Calif.

According to the Chronicle columnist, Wal-Mart was "trying to bully its way into another targeted community." Putting an issue to a vote is called "bullying" when business does it, and the community where it wants to locate is a "target."

Among the other rhetorical flourishes of this indictment is that Wal-Mart tries to "crush the competition." What does such purple prose amount to? That some people prefer shopping at Wal-Mart rather than in competing stores, so some of the latter may end up going out of business as a result.

In all this venting of spleen against Wal-Mart in the Chronicle column, there is no mention of the cynical role of activists in depriving a low-income community of jobs and taxes. By flexing their muscle against Wal-Mart, Jesse Jackson et al. have shown those who want to locate businesses in minority communities must get their OK — and that does not come cheap. ...

Yet another example of the anti-business climate in California is a class action lawsuit against the Bank of America and Wells Fargo for charging people for cashing paychecks when those people do not have accounts at these banks.

California law makes that illegal. But federal law says otherwise, and this will all have to be sorted out in appellate courts, at the taxpayers' expense.

Why such a law in the first place? Are there no costs to cashing checks? Do the people who do this work not get paid?

Tod Lindberg reviews how the "Politico-media echo chamber" continues to get it wrong.

From the people who brought you "Howard Dean will be the nominee," "George W. Bush is vulnerable," "Ralph Nader doesn't matter" and "the news conference bombed," we now have, more or less, "John Kerry can't win." Good grief.

A history lesson on outsourcing: Outsourcing is older than the United States. Excerpt:

Outsourcing -- the subject of intense controversy this election year -- is blamed for the loss of jobs in the United States, but outsourcing should be nothing new to Americans. The founding and development of America is the result of English outsourcing in the 17th and 18th centuries.

Insider trading is not the evil that many presume it to me. Thomas Sowell addresses the problem with criminalizing insider tradingas well as other atempts at criminalizing the unfairness of life. Excerpt:

Politicians are forever coming up with ''solutions'' to virtually every imaginable imperfection in life. But, if we give them more power and more of our money, we are very unlikely to end up better off on net balance.

The history of 20th century despotism is a history of leaders claiming to solve their people's problems for them - and then creating tragedies worse than any of the problems that they were supposedly going to solve.

Eternal vigilance is only part of the price of freedom. The maturity to live with imperfections is another crucial part of the price of freedom. ...

The political left has increasingly vented its hostility to business by creating criminal statutes for things that do not do nearly as much harm as the activities of the career criminals whom liberals are so willing to excuse or to let off with light or suspended sentences.

Liberals like to equate crime in the streets with ''crime in the suites.'' But nobody is afraid to go out at night in their own neighborhood for fear that Martha Stewart will sell them some stock. The verbal parallels of the left have little to do with the realities of life.

Recent decades have seen the criminalization of everything from foreign policy to farm practices that inconvenience some worm or toad. Donating money to political candidates has become so enmeshed in criminal laws that the advantage is given to those who can afford to pay lawyers to tell them how to avoid getting trapped - or even how to circumvent the intentions of the law.

and there ain't no unringing it. WSJ.com - Venture Firms Seek Start-Ups That Outsource. Excerpt:

At Kleiner Perkins Caufield & Byers, the graybeard firm of Silicon Valley venture capital, partner Ray Lane recently returned from his own trip to India. The former Oracle Corp. president says 30% to 40% of the start-up companies his fund has helped finance have sent work offshore. "These are basically five to 10, maybe 20, people. Small operations," he says.

At Mayfield, another Silicon Valley venture firm, partner Yogen Dalal says: "If you talk to all the leading VCs here, 50% to 60% of their portfolio companies have some interaction with India. But what really will happen in a couple of years, 90% of all start-ups will have some connection to India or China. There's no going back."

Great to see the Institute for Justice get some well deserved press:

...the Ohio businessman who wants that land for a $125 million development, and for the city of Norwood, which wants that developer for the new tax dollars it hopes he'll bring in.

There's just one hitch: A handful of small businesses and homeowners don't want to sell. Earlier this week, with the help of the Washington, D.C.-based Institute for Justice, they took their case to state court, arguing that the designation of their neighborhood under the city's blight ordinance was a sham. ...

Alas, this abuse of eminent domain is part of a larger pattern across America. We've written about some of these cases before, most recently the effort by a California city (rightly thwarted by a federal judge) to condemn land purchased by a church so it could be sold to Costco. Last month in Connecticut, the state's high court narrowly upheld the city of New London's right to transfer its powers of eminent domain to a private corporation for economic development. In New Jersey, owners of oceanfront property in the shore town of Long Branch are fighting city efforts to take their homes and replace them with condos and townhouses.

And yesterday Michigan's Supreme Court reconsidered a controversial 1981 decision -- a landmark case in eminent domain law -- that saw the blue-collar neighborhood of Poletown condemned and delivered on a platter to General Motors. Notwithstanding the millions in taxpayer subsidies GM received, and the razing of 1,200 homes, the plant ended up delivering only about half the number of jobs promised.

Notice anything similar about all these cases? Whereas years ago the "public use" provision of the Fifth Amendment meant invoking eminent domain for, say, a highway or school, expansive court rulings now allow local politicians to seize private property from Citizen A and hand it over to a Citizen B they believe will prove a better class of taxpayer.

The slippery slope here is obvious. Because businesses will always pay governments more than homeowners (and large businesses will yield more than small), it's no coincidence that governments tend to invoke eminent domain powers on behalf of the rich and politically well-connected at the expense of the mom-and-pop shop or the family that simply wants to keep the home it's lived in for generations.

I'm a buyer: HSX : Movies : Market : MovieStocks® : The Wedding Crashers. Excerpt:

Owen Wilson and Vince Vaughn will do anything to meet women, including hitting up area nuptials to meet eligible beauties as The Wedding Crashers. Trouble arises when Wilson's character falls for a bridesmaid who happens to be the daughter of the Secretary of Treasury, played by Christopher Walken. Steve Faber and Bob Fisher penned the comedy from New Line.

Before Global Warming, Evan's Journal reminds us, there was Global Cooling. Climate change fears aren't new--just the specifics. Excerpt:

A generation ago, scientists warned us against global cooling. Now they're ringing the alarm bells about global warming. Think about that next time the media hypes The Next Great Crisis.

"I don't own an SUV... The family has it. I don't have it"

-- John Kerry, explaining the nuanced provenance of his Chevy Suburban to reporters after yesterday's Earth Day speech.

Daniel W. Drezner does a fantastic job tackling "The Outsourcing Bogeyman" in Foreign Affairs. The conclusion:

Until robust job growth returns, the debate over outsourcing will not go away -- the political temptation to scapegoat foreigners is simply too great.

The refrain of "this time, it's different" is not new in the debate over free trade. In the 1980s, the Japanese variety of capitalism -- with its omniscient industrial policy and high nontariff barriers -- was supposed to supplant the U.S. system. Fifteen years later, that prediction sounds absurd. During the 1990s, the passage of NAFTA and the Uruguay Round of trade talks were supposed to create a "giant sucking sound" as jobs left the United States. Contrary to such fears, tens of millions of new jobs were created. Once the economy improves, the political hysteria over outsourcing will also disappear.

It is easy to praise economic globalization during boom times; the challenge, however, is to defend it during the lean years of a business cycle. Offshore outsourcing is not the bogeyman that critics say it is. Their arguments, however, must be persistently refuted. Otherwise, the results will be disastrous: less growth, lower incomes -- and fewer jobs for American workers.

Holman Jenkins does a great job debunking some of the myths surrounding the expensing of stock options issue:

Here's another nonsensical shibboleth: Because there's no accounting charge, companies treat options as if they have no cost, dishing them out like water to piggy executives, according to one prominent newspaper's editorial page.

Uh huh. Companies that dish out stock options like water pay an extremely large cost in their share prices, precisely the currency in which piggy executives choose to reward themselves and demonstrate their value to shareholders. By now, you could insulate your attic with academic studies attesting to the fact that the market recognizes the dilution cost caused by option issuance. How could it be otherwise? We'd have to abandon any notion that the stock market assigns rational values to company shares. Indeed, we'd be wise to close the market down immediately as a menace to society's wealth.

Here's another canard: Both advocates and opponents of expensing say it will (and perhaps should) lead to a precipitous drop in share prices because companies will have to reduce their reported earnings to account for their issued options.

Again: You don't change the market's mind about a company by telling it something it already knows. Otherwise, we could all get rich by shorting the shares of every company that issues stock options and then waiting calmly for the new accounting rule to take effect. ...

Had all concerned shown the intelligent curiosity to ask, first of all, does the stock market recognize the dilution cost of stock options, many forests could have been saved and the net infusion of CO2 into the atmosphere from participants on all sides of the expensing debate would have been radically reduced. We wouldn't be expecting expensing to cure a sick business culture, fix the distribution of income or improve the quality of stock prices. ...

The only debate worth having is whether expensing is desirable on the accounting merits. Our view, for the record, is that it does little to illuminate the costs and benefits of a company's compensation policy, while merely junking up earnings with another highly abstract and contingent deduction.

Worse -- and here's where we sympathize with the saner sort of Silicon Valley executive -- so big will be the impact on the accounting statements of some smaller tech companies that deciding how to measure options expense will be tantamount to deciding how much earnings to report. No wonder Silicon Valley CEOs hate the idea, especially with their heads already on the Sarbanes-Oxley chopping block.

The Economist is coming but is not a major threat to MSFT. However, MSFT has to worry about Linux on other platforms. Excerpt:

So Microsoft may not need to worry about Linux on PCs all that much. Insofar as it can point to competition from Linux, as it has been doing with Apple, as “proof� that it is not a monopoly, Linux may even help Microsoft in its legal battles.

But the future is uncertain, and Linux still might yet represent another kind of threat to the company. No standard operating system has yet emerged for mobile handsets, robots, watches, televisions, printers, car gadgets and other such devices. Microsoft, naturally, wants to extend Windows' dominance to these as well. It is here, rather than the desktop, that Linux could be a real threat to the mighty company's ambitions.

The NYT covers blogs and the quest to make them pay. Excerpt:

Henry Copeland, founder of BlogAds, a service that provides classified advertising for Web logs, is even more confident. He predicted that blogs that are making $5,000 a month will be making five or six times that a year from now. Soon, advertisers will be able to say "I want to buy ads on 25 different Web logs in Southern California written by women who drive humvees," and have the perfect audience at their fingertips, he said.

Sadly I have to agree with my friend Greg Gretsch on his main point in this piece on AO called "The Silicon Valley Diaspora." Here's the conclusion:

We now have our own Silicon Valley diaspora to moan about: the best and the brightest leaving these shores for bigger and better opportunities elsewhere. So watch out. While this first wave of India shining is dominated by call center and IT outsourcing, the next wave is likely to be dominated by software and hardware companies that build their products in India and their sales and marketing in the United States.

I recently had dinner with John Rutledge who made the point that what ultimately matters is not people flow but the flow of capital. Where will the investment capital go in the coming decades? There has been false comfort that the US is such a secure environment compared to the challenges of investing in China or India that we have an edge. But while this is true, the return on investment in Asia is so much higher that all they have to do is marginally reduce their risk profile and the money will flow there. Paraphrasing Rutledge, if you get 100% return on capital in China they may take 50% but that's better than 14% in the US. China recently added property rights into their constitution--clearly intended to make investment in China even more attractive (perhaps they've learned from Hernando De Soto.)

Meanwhile, in the US we layer on cost after cost that affect the investment profile of this country. Labor costs, regulatory costs, legal/tort costs, healthcare costs, tax costs, on and on. It seems that as a society we have decided, as the Europeans did last century, that we'd rather have wide and deep social programs and an active government than a competitive global economy. Of course businesses are leaving Silicon Valley--it's so darn expensive to do business here. This is not to say that we don't have advantages--we have one of the most economically adventurous cultures in the world, rife with risk takers, entrepreneurs, and an advanced investment and professional services infrastructure to support them--but the full equation is tilting towards Asia.

It is no wonder that with the US economy being the world's most dominant that we've made this choice--the Europization of America might be inevitable. But personally I think that America's highest priority should be to compete economically--and that this will provide the best social security blanket possible (after all, to those on the left, you need wealth in order to redistribute it.) Unfortunately, nary a politician has talked about making the US competitive. John Kerry talks about raising taxes and has shown protectionist colors, condemning outsourcing CEO's as "Benedict Arnolds" and going wobbly on NAFTA. Bush hasn't been much better though he has done much on the tax cutting front. Eventually we'll all clue into the fact that our status as the economic power of the world can't be taken for granted and we actually have to compete with the world--but when we do will it be too late?

Ah, regulatory logic. Here's how the USDA is cutting off a niche meatpacker from its best markets. Excerpt:

Japanese buyers assured Mr. Fielding that they would buy again if he tested his beef for the disease, formally known as bovine spongiform encephalopathy.

In response, he built a laboratory five feet from the overhead chain that carries skinned heads through the plant. His staff was trained in testing for mad cow, using a machine that gives results in seven hours, while the carcasses are still in the cooler.

But on April 9, the United States Department of Agriculture forbade Creekstone to test its cattle, saying there was "no scientific justification" for testing young steers like those Creekstone sells. Certifying some beef for Japan as disease-free, the department said, might confuse American consumers into thinking that untested beef was not safe.

Calling those arguments "ludicrous," Mr. Fielding has threatened to sue. He says he only wants the freedom to please a big, fussy customer, and he accuses the department of bending to the will of the big meat companies that control 80 percent of the industry.

I'm probably the last one in the blogosphere to link to it, but here's a great review of A9, with some business analysis, from John Battelle. Excerpt:

It seems to me, Google's position in Amazon's A9 implementation is at best a step backwards. If A9 is as good as it seems to be, every customer that uses and/or switches to A9 becomes an A9 search customer, and, more likely than not, a deeper and far more loyal Amazon customer. (The service incorporates a personal search history and many other really neat tweaks, including a wicked good Toolbar.) In essence, Amazon seems to be making a play for Google's customers. Or it seems that way to me, anyway. Sure, Amazon isn't in the AdWords business. It's happy to outsource that to Google and focus on the entire US retail GDP instead...

Tim O'Reilly does a fantastic job analyzing GMail--debunking the privacy concerns and pointing out what's really going on here in Worth a read. Excerpt:

There has been a rash of recent editorials about privacy concerns with Google's gmail service. A number of organizations have asked Google to voluntarily suspend the service. One California legislator has gone so far as to say she plans to introduce a bill to ban it. This is nuts! A number of things to consider:

Tom Hazlett discusses "Pricing 'free' New Economy goods." Excerpt:

Satellite operators compete by offering more - and better - programmes at higher prices, and cable incumbents have been forced to respond in kind, upgrading content (including clearer pictures on digital tiers). While cable’s inflation-adjusted rates rise, consumers believe they get more value per dollar.

Nonetheless, the menace of outrageous cable rate rises screams out to policymakers. Hearings are held, cable company executives bashed, headlines written. Yet what can be done? Rate controls flunked the market test in 1992-94, when subscription fees were slashed about 10 per cent by regulators, only to see cable programming (i.e. service quality) deteriorate so dramatically that subscriber growth declined - revealing that consumers were fleeing from the "consumer protection".

So, a new plan. Senator John McCain (R-AZ) and others want to force cable systems to price networks à la carte, giving subscribers the option to select, say, the History Channel, Toon,TNT and CourtTV while passing on TBS, Lifetime and C-SPAN1. If you only pay for channels you actually want to watch, you will save lots of money.

Guess again. Because à la carte pricing prompts the operator to re-price, the customer’s quality-adjusted rate is likely to rise. ...

Information goods are tricky. The first unit often costs oodles to create, while the next billion units are free. So with video, where cost-based pricing becomes moot, and capitalists conjure ways to push their products out to mass audiences. That is a good thing. So is the competition with satellite TV, forcing cable monopolists to pump up quality. The political reaction to the illusion of higher prices offers to help customers by taking away channels. That is a bad thing. A la carte? Au contraire - prix fixe for the all-you-can-eat buffet, garçon.

Henry Miller argues in The Union Leader that "Bush [is] a piker at manipulating science, compared to Clinton, Gore."

As President Clinton’s science and technology czar, Vice President Al Gore chose many high-level appointees to regulatory agencies, and thereby obtained the leverage to politicize the administration’s policies and decisions. ...

Never has American government been burdened with such politically motivated, anti-science, anti-technology, anti-business eco-babble. Yet those who now criticize the Bush administration were silent.

As troubling as the substance of the Clinton-Gore policies was, the mean-spirited nature of their practices was as bad. Gore brooked no dissension or challenge to his view of policy or scientific rectitude and went to extraordinary lengths to purge his “enemies” throughout the government. In order to rid the civil service of dissenting views, Gore and his staff interfered in federal personnel matters in ethically questionable ways.

These are hilarious.

"That's right, just 'Joyce.' It practically sells itself. For as much as 50 cents, judging by the price tag. Kudos to the marketing genius who came up with this layout. (I think Joyce went on to become an angry algebra teacher at my high school. She always used to bust me and my girlfriend making out behind the building.)"

A fascinating essay by Clay Shirky called Situated Software. Worth reading on many levels, but one interesting point he makes is that while we worry about outsourcing, there is actually a lot of "downsourcing" going on to. Excerpt:

Finally, the practice of programming is changing. Gartner recently caused a stir by saying there would be 235,000 fewer programmers in the US ten years from now. This would have been like predicting in the 80s, that there would be fewer typists in the US by 2004. Such a prediction would be true in one sense -- the office typing pool has disappeared, and much data entry work has moved overseas. But actual typing, fingers hitting the keyboard, has not disappeared, it has spread everywhere.

So with programming; though all the attention is going to outsourcing, there's also a lot of downsourcing going on, the movement of programming from a job description to a more widely practiced skill. If by programmer we mean "people who write code" instead of "people who are paid to write code", the number of programmers is going to go up, way up, by 2015, even though many of the people using perl and JavaScript and Flash don't think of themselves as programmers.

Here's a cool new blog by Mike Millikin called Green Car Congress: Technologies, issues and polices for sustainable mobility. It's full of interesting data and analysis in the "sustainable mobility" area. So let me be one of the first, if not the first, to reference a story on Mike's blog. And let me challenge the POV a bit. Mike makes the point in this post that energy dependence is a security issue. In fact, there is not much argument to support this, presumably because this is something many people take for granted. The line of think seems to go: because how much oil we use (well beyond our domestic capacity) we are dependent on foreign suppliers of oil and so we are at their mercy--and this is a danger. This issue is exacerbated by the notion that oil is a finite resource and so our dependence--and the security risk--will only increase. As Mike puts it:

Oil is a finite, non-renewable (at least in our timeframe) resource. Production of such a resource follows a curve, and after you hit the peak of production, you begin declining. It doesn’t precisely mean that you are running out – it means that our ability to extract it – to produce it – diminishes as the resource itself is depleted – to the point where it is too expensive or impractical for other reasons.

This is an interesting panel sponsored by The Progress & Freedom Foundation. The crux is an important debate over whether wireless spectrum should be treated as government owned and controlled commons, as Larry Lessig argues for, or parcelled out as private property, as Duke University Law Professor Stuart Benjamin will argue on this panel and has argued in the paper linked below. Count me as an advocate for the private property approach. Excerpt from the panel gives a good overview:

WASHINGTON, D.C. - In the fast-changing world of wireless communications, a current enthusiasm of some big-name legal scholars is the creation by government of a ‘commons' through which people transmit on open radio spectrum. But Duke University Law Professor Stuart Benjamin, who is not unenthused about the prospect of umpteen wireless users communicating in self-perpetuating ‘abundant networks', thinks private control of spectrum is better. He and a panel of experts debate public versus private spectrum control at an April 15 Congressional Seminar sponsored by The Progress & Freedom Foundation.

“There has been much ferment recently in the world of wireless communications,” Benjamin writes in a paper released by the Foundation, “Does Spectrum Abundance Justify Public Control?” Commons advocates “contend that we can now have wireless networks in which each new device also creates new capacity, such that a wireless network can add users without creating interference.” Stanford Law Professor Larry Lessig and other advocates “contend that a new paradigm is now technologically possible, in which an effectively infinite number of users can communicate without interfering with one another,” he writes. In fact, they “argue that these abundant networks will not arise if private parties obtain property rights in spectrum.

“My answer is that the possibility of abundant networks calls into question one aspect of the government's allotment of spectrum – namely, the division of spectrum into small parcels – but it does not cast doubt on the efficiency of private ownership. If spectrum is allotted in large swaths, there is every reason to expect that private owners will create abundant networks (assuming of course, that these networks work as promised),” Benjamin concludes.

I've praised Hernando de Soto in the past, and so it's great to see him win the Cato Institute's Milton Friedman Prize for Advancing Liberty. Here is an excerpt from WSJ's coverage:

Peru's informal economies, it turned out, were already full of enormously capable entrepreneurs. What held them back was burdensome government regulation and a lack of property rights. There was no way for them to move into the formal economy.

Mr. de Soto has since made it his life's work to spread the gospel of property rights in the developing world. His 2000 "The Mystery of Capital" advances the work done in Peru, looking at informal markets in places such as Egypt and the Philippines. The book also traces the evolution of property rights in the U.S., emphasizing the importance of an institutional and legal framework that recognizes and protects the value behind an ownership deed. Without such institutions wealth and creativity remain untapped and growth stagnates.

The job of empowering the world's poor is far from done, especially in Africa and the Arab street. But thanks to Mr. de Soto's efforts, much has been added to our understanding of what is needed to unleash the entrepreneurial spirit that exists in every human society.

Reed Hastings says Expense It!, and Netflix has--expensed options, that is. But his comforting exhortation:

Silicon Valley is about the joy of innovation, and we will survive closing the stock option loophole just fine. So, fellow CEOs: Let's move on to important things -- like enhancing free trade, creating jobs and improving our education system.

Messrs. Hassett and Wallison, both of the American Enterprise Institute, write that "circumstances might be considerably different if the FASB were in a position to specify an options-pricing model that would be acceptable to all companies." That way, the company would have a decent defense against lawsuits. But FASB appears unable to specify a model -- because none exists -- so it's apparently going to leave it to companies to pick or invent their own. Accounting firms, especially the large ones, will benefit too, because companies will be forced to pay them to verify that the model they use is legitimate -- even though there is no example of a legitimate model.

So companies will be told that they must expense, but won't be told how to do it. It would be hard to dispute an assertion that this is the worst of all possible worlds for public companies -- and a truly mouth-watering scenario for the class-action brigade.

So what's clear and sensible about FASB's direction? Options are an expense, they say, but we aren't going to tell companies how to calculate that expense. And if they do it wrong, they'll violate the law and go to jail. Where is the sense in this?

Two Columbia University economists, Charles Calomiris and Glenn Hubbard (who served as chairman of President Bush's Council of Economic Advisors from 2001 to 2003), have extensively documented the uncertainty surrounding attempts to quantify options expenses. The Black-Scholes model and its cousin, the binomial method, can be wildly inaccurate. FASB knows this and is, therefore, unlikely to require any single means of calculation. It's all up to corporate financial officers and their auditors, none of whom have a reliable method to account for options. It's the blind leading the blind leading the blind.

Venture capitalist John Doerr appropriately identified this as a U.S. competitiveness issue in testimony before Congress last year. "The innovation economy is where we're going to get the growth in jobs and the economic security for Americans," Mr. Doerr said. "[B]road-based employee stock ownership, which I contend will disappear if expensing is mandated. . .delivers higher returns to the shareowners of the companies who use them, produces higher productivity, higher returns on equity, higher returns on assets, counting the effect of dilution."

In other words, expensing options is not just an accounting issue. It has real-life effects. Some companies may cut back drastically on the options they issue, or forgo them entirely. This in turn will hurt the economy and punish companies that practice good corporate governance. Economists William Baumol and Burton Malkiel have written that options "are needed to ensure the compatibility of the interests of stockholders and management, whose divergence has recently been so dramatically demonstrated."

Some thoughts on the economy from David Malpass, chief global economist at Bear, Stearns. Excerpts:

The political charge is that previous recoveries created more jobs than this one. There are many problems with this contention, but the big-picture error is that previous recoveries took place at higher unemployment levels, were caused by inflation, and aren't comparable. It doesn't make much sense to compare today's job growth rate, when unemployment is 5.7%, to 1984's recovery, when unemployment was at 7.5%. ...

The establishment survey suffers from over-hype. In a given quarter, more than 7.5 million jobs are created and roughly that number lost, with the difference -- 179,000 in the fourth quarter, 513,000 more in the first quarter -- being the job growth shown in the establishment survey. It is based on a statistical sample seeking to measure small changes in a large number, the 131 million U.S. non-farm labor force. It's like taking the temperature in one city per state, then asking people to guess whether the average temperature for the whole nation is 51.3 degrees or 51.4 degrees. ...

Despite the naysayers, the recovery has become a durable expansion, with mild inflation and higher interest rates coming into view. In many ways, Friday's jobs report just confirms what we already knew from other data. The U.S. employment situation is strong, improving, and still the envy of the economic world.

Steven Malanga discusses "The War on Wal-Mart." Excerpts:

Wal-Mart has led a productivity revolution in retailing which supercharged the American economy. Warren Buffett even declared that Wal-Mart -- not Microsoft -- has contributed more than any other business to the health of the economy. ...

Though union-sponsored campaigns have meant little to consumers, the constant attacks are scoring in the elite media, whose members rarely go to Wal-Mart and can't understand the importance of the stores to middle-American shoppers. Once celebrated in the press for Sam Walton's folksy wisdom, Wal-Mart today is just as likely to be the subject of stories with headlines such as: "Is Wal-Mart Too Powerful?" -- which advance the left's line that Wal-Mart's business model is undermining the buying power of the American worker. So striking have the attacks been that a Kansas City newspaper columnist recently suggested that the national press is "angry that average Americans don't share their perceptions of Wal-Mart as the bad guys."

Not surprisingly, the press downplays Wal-Mart's virtues: that it has never been accused of funny accounting; that it doesn't reward its executives with exorbitant salaries or perks; that not only do other executives call it the most admired company in America, but shopping surveys show it is the consumer's favorite store. But acclaim from common folk may not protect a company when elite opinion turns against it, influencing legislators, regulators and the courts. That's why Wal-Mart has become the chief private-sector target of trial lawyers, sued more than any other company, as the plaintiff's bar and its allies seek to achieve through litigation what activists struggle to accomplish in organizing drives. And every battle they win will cost the American consumer.

Thomas Sowell makes the point (Basic Economics: Counting the Costs of Business) that rarely when local regulations are debated are the true costs considered. This is what makes decision making in political processes so different than in market processes, where the pricing mechanism captures the costs. It is often held by critics that market decisions can be unjust, or at least don't take into account valuable social factors, and therefore political decisions are needed to provide "balance" or even justice. Yet in practice, politicizing decisions often removes them from basic economic accountability, distorting them to a point at which rational decisions are nearly impossible. In other words, many regulations though well intended perhaps, are simply irrational because they don't account for the true costs and unintended consequeces. Excerpt:

The point here is not that a particular policy in San Mateo or San Francisco is wrong. The point is that those who make such policies are not forced to count all the costs created by those policies.

Most people making most decisions, whether in government or in the private marketplace, have no idea in what way their particular preferences add to the costs. But, in the marketplace, the price conveys the end result -- which is what matters for making decisions.

As reported in The New York Times, Kerry who's been campaigning for a while now and so should have his story straight, made a fairly remarkable statement of his position on the war with Iraq. Stunning that a man running for president has no better answer to "what would you do differently in Iraq?" than the incredible muddle quoted below. Americans deserve a credible choice this November and Kerry is utterly failing to deliver it. Man, and I thought George W. was inarticulate. Excerpt:

In an interview on Wednesday with American Urban Radio Networks, Mr. Kerry described the president's Iraq policy as "one of the greatest failures of diplomacy and failures of judgment that I have seen in all the time that I've been in public life."

Still, even as he attacked Mr. Bush, Mr. Kerry was notably vague in saying how he would handle the matter as president. His advisers said he had no plans to offer a policy speech about a war that aides to Mr. Bush and Mr. Kerry alike said they now expected to provide a bloody backdrop for the campaign for months.

"Right now, what I would do differently is, I mean, look, I'm not the president, and I didn't create this mess so I don't want to acknowledge a mistake that I haven't made," Mr. Kerry said on Wednesday on CNN.

Mr. Kerry ignored two questions shouted to him by reporters at a meeting he held with economic advisers, about whether he would "take out" Moktada al-Sadr, the radical Shiite clergyman, a pool report said.

Funny and sad: bt: Quantum Democrats Excerpt:

According to principles of quantum mechanics, it is possible for a subatomic particle to occupy multiple positions at the same time. Perhaps the Democrats hope to become the quantum party. If so, it explains why John Kerry, the consummate Quantum Candidate, is the perfect person to head the Democratic ticket this fall. Here's a man who criticizes President Bush for not giving our troops in Iraq sufficient supplies and equipment. But when he was given a chance to vote for an $87 billion package to supply our troops, he ultimately voted against it. (Although, in fairness to Kerry, I should note his nuanced stance on the issue: he explained his vote by saying, "I actually did vote for the $87 billion before I voted against it.")

While the "safety net" thinking of the Great Society had much to recommend it, at some point one must look at the facts: the movement that had virtuous aims has had some poor results. It is a pernicous elitism that suggests that people are better off being wards of the state that self-dependant contributors. The WSJ reviews the success of welfare reform and points out that Democrats voated against extending it. Now if only these principles could be applied to education, healthcare, social security, affirmative action, and the like. See the chart:

Here's an excerpt:

One of the most impressive trends post-reform has been the drop in poverty among children of single mothers--a group whose numbers had barely budged in the previous quarter-century. In 1995 the poverty rate for this demographic was 50.3%, down only slightly from 53.1% in 1971. By 2001, and notwithstanding the recession, the number had fallen to 39.8%, a record low.

These positive results are holding up despite the recession and sluggish recovery in the job market. Liberals insisted that the 1990s boom, not new work incentives, was driving down poverty, and certainly economic growth has helped. But welfare rolls--down by more than 60% since 1996--continue to shrink even four years after the stock bubble burst, and today there are 2.9 million fewer children living in poverty than in 1995. Moreover, the employment rate for poor single moms, who under the old system were most likely to become long-term welfare recipients, is up 50%.

All of this was accomplished not under the Great Society policy of government handouts that liberals still defend today. Instead, the reform motivation was to break the cycle of dependency that 40 years of open-ended social welfare policies and perverse incentives had created.

Let's all take a deep breath and stop worrying about gas prices. Some perspective from JERRY TAYLOR and PETER VAN DOREN in WSJ.Excerpt:

In short, gasoline prices are relatively normal by historic terms. Sure, people are paying more for gasoline today than ever before. They're also paying more for houses, cars, lettuce, baseball cards and almost everything else than ever before. Historical comparisons of prices over the years mean absolutely nothing unless we adjust for inflation.

If we adjust gasoline prices for inflation and use 2003 dollars, we find that during the most celebrated days of cheap fuel and gas guzzling cars -- 1955 -- gasoline actually cost $1.66 a gallon on average across the nation. In 1972, the year before OPEC began to flex its muscles, prices were $1.28 a gallon. In 1981, the real record was set -- $2.36 cents a gallon. Heck, prices are only a nickel higher now than at this time last year.

We should not stop there, however. A better measure of the affordability of gasoline over time is not its inflation-adjusted price alone, but its inflation-adjusted price in comparison with our economic resources (in this case, inflation-adjusted GDP per capita). Even though the real price of gasoline was lower in 1972 ($1.28) than today ($1.73), per capita GDP is now $39,919 whereas it was only $20,667 (measured in 2003 dollars) in 1972. Real incomes have almost doubled since 1972, but real gasoline price have risen only 35%. Real gasoline prices were slightly lower in 1955 than today ($1.66 versus $1.73). But real per-capita GDP is almost $40,000 today and was only $14,094 in 1955. Real gasoline prices at the height of the oil shock in 1981 were higher than today ($2.36 versus $1.73), while real GDP per capita was lower ($24,369 versus almost $40,000) than today.

By those measures, then, gasoline prices today are only 37% of what they were in 1955, 70% of what they were in 1972, and 45% of what they were relative to income in 1981.

A host of authors writing in the Taipei Times, discuss how to promote democracy in the Greater Middle East. An interesting suggestion: create a cabinet level "Department of Democracy" in the US. Excerpt:

The enthusiasm for reform in the Middle East marks a paradigm shift. In the past, other interests, such as securing a steady flow of oil or obtaining cooperation on counter-terrorism, assumed priority. But, despite flourishing rhetoric about promoting democracy, promoting it is still not backed with concrete plans of action. A serious strategy must do three things: increase support for the region's democrats; create a regional context that facilitates democratic development; and, finally, reorganize ourselves at home to pursue and sustain pro-democracy policies abroad.

Paul E. Peterson writing in The Stanford Daily disputes the "unfunded mandate" rhetoric often used by campaigning Democrats:

It has been said, more than once, that the No Child Left Behind (NCLB) Act is a mandate that the federal government has failed to fund. Not true. The law is neither unfunded nor, with one exception, is it much of a mandate. ...

Still, there remains one potent mandate. Because of the NCLB testing requirement, parents and taxpayers are being told, more clearly than ever, how much students are learning at school. The feds are making school officials and union leaders squirm under the bright light of continuously available information about school performance. What’s so bad about that?

The substance of Lou Dobbs' argument to Marc Andreessen in the exchange transcribed below is essentially that because we haven't seen job growth, we should take it as an "article of faith" that we will see it through the undirected machinations of the market. In fact, Dobbs used the word "faith" 7 times in this relatively short exchange. First, I found it fascinating that a once economic conservative like Lou Dobbs was trotting out an old, tired line of argument from the left, while being ably rebuffed by a Democrat. Second, while I think Marc did a great job, I wish he had hit the faith thing head on.

Marc made the obvious and necessary point: that there is no reason to believe that the trend of the last 4 years, that Dobbs cited often, was evidence of a reversal of the trends over the last 200 years. It appears to me that it takes a lot more faith (and sort of perverse faith at that) to believe that Dobbs' trend, not Marc's, will prevail. More to the point, it is always astounding to me when people--especially people who have witnessed first hand the benefits bestowed by free markets--think it takes an article of faith to believe that the market will continue to operate according to the principles that have been we'll examined and defined since Adam Smith, but that it apparently takes no faith to believe that government intervention will work as intended, despite countless failures and unintended consequences. Implicit in Dobbs' rhetoric is a call for protectionism. Believing that trade barriers, even in the services realm, will work despite loads of evidence over centuries to the contrary... now THAT takes faith.

And... believing that peddling sensationalist, economically unsound claptrap, pandering to irrational fears in a slow recovery, and unrepentant demagoguery is the way to build sustainable ratings, well, that takes faith as well.