An inconvienent truth....

On Monday night the former Vice President accepted an award for his celluloid screed which argues that all of us should be more careful with our "Mother Earth" and should reduce our energy consumption from fossil fuels. The Tennessee Center for Policy Research thought it might be useful to look at the public records of the Nashville Electric Service to understand how this leader actually lives his life. The average American consumes 10,556 kilowatt hours per year. Mr. Gore uses a bit more - 22,619. To show you what a good leader he is he actually increased his consumption by more than 12% from 2005 to 2006. His natural gas bills were almost $1100 more a month.

In a small and well hidden story about the press release the Sacramento Bee pointed out that the Center "disputes whether global warming is a serious problem." (Page A7 no link) In the spirit of accuracy, the Tennessee Center lists as its main areas of research "Education, Healthcare,Tax and Budget(including reducing the regulatory burden), and Other (reflecting the Founding Father's vision of a free society)" as its key policy areas. Of all the current papers on the organization's site there is but one on anything relating to energy policy and none on global warming. But evidently the AP, who originally published the story, didn't bother to check that. They were more interested in "pish-poshing" a legitimate story about the hypocrisy of this supposed leader. A spokeswoman for Gore claimed that he "invests in enough renewable power to make up for the home's power consumption." If his earlier hectoring of all of us for the public schools (while his kids went to St. Alban's a private school in Washington was not enough) this is another example of Gore's constant "do as I say, not as I do" form of public policy.

Five Ideas from the Wealth of Nations

As noted earlier, I am re-reading the Wealth of Nations. It is a long book and there is more about Sheep and Tallow than I would have preferred but Smith has a lot to say about several economic truths.

For example, On Slavery- Smith argues that slave owners in arbitrary regimes are more likely to treat their slaves more fairly than those in systems with established rule of law. Make no mistake about it, Smith has no support for any form of slavery but his comment is an interesting one. In those societies with a rule of law, the state is less likely to involve themselves in issues of property. Thus, in an arbitrary society, the leader has a greater need to be involved in all issues of property and thus is likely to set up better conditions for slaves.

On Famines and Governmental Interventions - Smith argues in Book III that "but by far the greatest number of cases by the fault of the seasons; and that a famine has never arisen from any other cause but the violence of government attempting, by improper means, to remedy the inconveniences of dearth." Smith argues that government will always help to misallocate resources in society be it in responding to a slow down in agricultural production or almost any other cause (this is also covered in other parts of the book). The evidence of some of the worst famines in the last two decades suggests the reality of Smith's observations.

Colonies - Smith argues that colonies result in misallocations of resources in the mother country and in the colony. That is a result of the demands of maintaining the system and is exacerbated by the role of mercantilist doctrine (which was the fundamental focus of the book). Smith's position here is similar to his earlier discussions of the benefits of the Act of Union. Ultimately, the best arrangement for colonies would be a freer status whereby economic trade is free and open between the former colony and the prior colonizer.

Mercantilist Economics - "The effect of bounties (special preferences for mercantile licenses), like that of all other expedients of the mercantile system, can only be to force the trade of a country into a channel much less advantageous than that in which it would naturally run of its own accord." The mercantile system gave exclusive licenses to firms so that they could limit sales of certain products to colonies or in areas of the economy or grant other privileges to some entities in society. That has a couple of negative consequences. First, the producers mis-price the commodities for which they have responsibility. That may mean over or under production of the commodity. Second, the client economy may produce some commodity which will require that economy to use resources which could have been more productively used in other situations. Smith takes on the production of tobacco which he argues employs English capital in areas which cannot be employed because of the concentration to other more productive areas. Smith argues elsewhere that corn is the right base commodity which should influence economic values in the rest of the economy. With tobacco the English produce requires them to inventory the tobacco that does not sell in the English economy. That reduced the total return of invested capital in the economy. Ultimately Smith argues that the system is built to aid producers to the disadvantage of consumers. In the end because it messes with normal market allocations it fails in its goals by not aiding the producers nor the consumers.

Mining - Smith is not a big fan of mining. He argues that the investment to produce revenues in mining are much more uncertain than any other similar investments. Gold and silver are never in veins deep and wide enough to produce a consistent level of return. Thus, some people win big. Smith anticipated the Gold Rush of 1849 in California and most of the Gold and Silver rushes in our history.

TWN is a great book. Smith seems to have been a careful academic, a lot of his discussion of values in the economy is based on research - therefore the discussions of the value of tallow and hides over time. While that detail is sometimes mind numbing - the kernals thrown out by Smith, beyond the Bull Headed Brewer, are worth wading through the comparisons.

TNR's Take on Elizabeth Dole

In the Valentine's edition of the New Republic Michelle Cottle tries to make the case that Elizabeth Dole does not deserve the heap of criticism that has been handed her way since the GOP got handed the loss of control of the Senate. "Dole was ill-suited to the partisan mudwrestling aspects of the job (especially compared with Democratic counterpart Schumer)." Cottle goes on to say "No matter that she was operating in one of the most Republican-unfriendly climates in memory. And no matter that most folks now agree the tight races in places like Virginia and Missouri weren't lost on money. When elections go south, the leadership is a thankless place to be, and the stench of failure now clings to Dole like poop on a shoe. " Cottle's apologia falls flat. Sure, Dole faced a heavy headwind but she did nothing to transform the situation. She did not do a good job of candidate recruitment nor did she raise enough dough. Chuck Shumer did a much better job. Early in the process, her work looked like a lot of the rest of her career - perfect nails but nothing behind them.

Cottle goes on to say "While she occasionally takes a stab at political glamour roles, at heart Liddy seems more bureaucrat than politician. (This is, after all, the gal who spent two years as Richard Nixon's deputy assistant for Consumer Affairs, six years at the Federal Trade Commission, four-and-a-half years as Ronald Reagan's Transportation secretary, two years as Poppy Bush's Labor secretary, and eight years as head of the Red Cross.)" In many of those roles she was either lackluster or bordering on incompetent. If the role of campaign chair was not her cup of tea - then why did she take it?

Her husband once criticized George HW Bush as someone whose "resume exceeded the man." One might also use that criticism of Liddy. Cottle credits her as a policy wonk - there is little evidence of that. Her policy output in February included such major policy initiatives as S.496 - A bill to reauthorize and improve the program authorized by the Appalachian Regional Development Act of 1965. Whoopdie Doo - a constituent bill. S.RES.73 - A resolution designating February 6, 2007, as "Ronald Reagan Day". RWR was a wonderful president but is this something of substance? S.488 - A bill to revise the boundary of the Carl Sandburg Home National Historic Site in the State of North Carolina, and for other purposes. Wow!!! Policy, important policy and another constituent bill. S.RES.69 - A resolution recognizing the African-American spiritual as a national treasure. Zowie, a very important and controversial issue again. What Vision!!! S.RES.67 - A resolution designating March 2007 as "Go Direct Month". No further comment is necessary.

Cottle claims Dole is passionate about things like Community College articulation (improving the chances of moving from 2 year to four year institutions to finish a BA). But in order to be effective you need committee assignments to carry out your goals. Dole serves on the Banking, Housing and Urban Affairs; Armed Services and Aging. If she were really serious about the business of community college transfer she would be on the right committee. If you look at her output since the start of the new congress there is little to suggest that anything of substance related to any of her three committees.

Perhaps no person leading the GOP Senate Committee could have pulled 2006 out. But with a couple of minor policy changes, a bit more money and a little less concentration on some of the odder races the results might have been different.

What is wrong with WIRED?

Last week Apple CEO Steve Jobs made some comments about the state of the public schools at a conference in Texas on school reform. Jobs' most quoted statement in the speech was "the unionization and lifetime employment of K-12 teachers is off the charts crazy." Leander Kahney wrote a response to Jobs' observations that made me cringe. Kahney claims that the most pressing problems facing California schools are that the schools are "too big, too bureaucratic and chronically underfunded. Teachers are criminally low paid and under trained. Education--- and school funding--- has become solely about test scores."

Kahney then goes on to compare Jobs to Mussolini. He disses Jobs for his support of vouchers and ridicules the idea that choice will help improve schools. He argues, absurdly, that choice will only apply to rich parents and will ignore poor children.

Kahney should look a bit more at the markets his magazine supposedly covers rather than preaching leftist BS. There are so many flaws in Kahney's arguments (besides the personal attacks) that one wonders where to begin. Here are a couple of issues I would have looked at -

* Has he looked at the inflation adjusted funding for K-12 schools over the last decade or two or three? He would find that funding has increased while output has declined? Indeed, we rely too much on tests but that came about because the public school advocates (including the teacher unions) wanted more money and could not demonstrate results - in this political era that is what you can expect. Keeping the schools in the political arena may produce unreasonable results.
* Has he ever wondered whether the model of collective bargaining, which makes it almost impossible to fire an incompetent teacher or make changes in the schedules of teachers, is the right model for assuring that teachers have a voice in their schools? A number of thoughtful observers have commented on the increased rigidity that teacher unions have added to schools.
* Has he bothered to look at what a teacher gets paid? Starting teachers get paid a lot more when they start out with people of similar training and education. They do not top out in six figures but can make a reasonable salary for the amount of time that they work in a year. Most teachers get a two months off in the summer, two weeks at Christmas and one week in the spring. Thus, they get paid a salary for working a bit more than 9 months of the year. If you normalized that to a person working in the private sector, it might increase the net value of compensation by a quarter. That is coupled with a very generous retirement system. Net compensation is not comparable to the CEO of a Fortune 500 but it is also not penurious.

Kahney wants to ignore the rigidities that collective bargaining has brought into the classroom. Indeed, there are other problems but a good deal of the bureaucracy comes from the organizing principles that are in part created by collective bargaining. The teacher unions want to limit parental involvement in schools. They want to make rules for hiring and evaluating teachers as rigid as possible. While they are not the only problem - they are a big source of it.

I am not sure how Kahney would react to the benefits of competition in the magazine industry. People get a broad range of choices to meet their information needs at various prices and qualities. If that works in his industry why would it not in education? Why shouldn't parents have a lot more choices than they do now?

WIRED at one point was at the cutting edge - until recently it was a place to become informed about how technology was evolving and how it might affect our lives. It was once a must read for anyone interested in this part of the economy. But in the last few years, it has lost its focus and treads between spouting off in non-technology areas and presenting the mundane and the expensive as if they were trendy. Luckily, unlike the world that Kahney yearns for in the public schools, when my subscription comes up again, I will have the opportunity to drop my subscription and find something which meets my information needs. Too bad, Kahney does not want the same thing for children attending school.

The Loonstream Media

The WP had a story this morning which was quite interesting about the left side of the blogosphere and their attempt to unseat California democrat Ellen Tauscher. Tauscher comes from an area of the state that is aggressively moderate. She won her first race for the seat she now holds because she and some others recognized that the then incumbent was a bit out of touch - a charming guy with a very sharp tongue.

If you look at the geography of the district you begin to understand it. The suburban homes in it are separated from the far left coast by a small coastal mountain range - this is not Berkeley or San Francisco or Oakland where all sorts of extreme left candidates can be elected. But it also is the Bay Area where democrats are very strong. The heart of the district includes high end houses of people who mostly (although with some processessing headquarters moving to the East Bay there is some significant economic activity) work in the "city" (read SF) but who chose not to live there.

But starting with the Daily Kos and evolving into two new blogs ( Dump Ellen Tauscher and Ellen Tauscher Weekly) the loon left had started a serious (It is hard to use that word in this context) to dump the member. Kos, in fact, is credited as the "inspiration" for the new blog. Kos seems to want ideological purity that would make Mao blush.

Mind you, I am not a fan of Tauscher's, her predecessor was a friend (although he lost touch with his district and deserved to lose). But this effort suggests how fragile the new majority in the congress really is. Ultimately, political majorities are constructed broadly. They need to take more than just the ideologically pure to sustain themselves. Tauscher is a pretty good vote for the left. Compare for example, the ADA (Americans for Democratic Action - a good left of center indicator. ) ratings of Pelosi (100), Barbara Lee (95), George Miller (100) and Tauscher (90). In some years she dips to shudder 85. It is unlikely that either an ideologically pure 100% is likely to be elected in her district or that a GOP successor in the district would have a rating much above 10%. But the Loonstream Media cannot stand her minor glitches into independence. The most recent post on Dump Ellen Tauscher asks the question " Anyone living in the CA-10, who do you know that's electable?"

Tauscher has been a consistently strong candidate in her district winning often by huge margins. But in a district like this, pulling out the far left vote could swing the district back to a GOP member. In reality, these kinds of ideologues eventually burn out but it is fun to see the ones on the left reemerge.

Who said this?

"They are trying to divert attention from the issue at hand, they'd like to turn the Senate into a procedural quagmire. They want to hide behind weak and misleading arguments about the Senate's rules or a senator's right to offer amendments. These arguments are diversions."

“The American people can see what is happening here,they know that some want to prevent a vote at all costs.”

No, this was not a quote from the last congress by Bill Frist the then republican leader on the democrat attempts to prevent the full senate from voting on a series of judicial nominees.

The first quote was by the current leader of the Senate expressing frustration about the GOP's ability to prevent the Senate from considering a symbolic attempt to embarrass the president. The second was by Ben Nelson of Nebraska. By the way, the democrat's leader prevented a GOP vote on a resolution, a bit less symbolic, which would have denied the right of the majority to withdraw funding from the troops in Iraq.

There were seven members of the GOP caucus who voted to begin the debate and both the NYT and the WP suggested that the support in the GOP was declining but all of the seven were members who had previously opposed the president's plan for building troop strength in Iraq. There were nine members of the GOP caucus who did not vote (two were in Iraq and one campaigning for the presidency) although the WP failed to mention that fact. (The way the post described the absentees was a bit strange - they highlighted that Tim Johnson was still absent but then simply said 10 members did not vote - 9 of those were from the GOP.)

The Senate blabbered on yesterday about this symbolic gesture yesterday but has thusfar refused to respond to any more substantive proposals either to escalate or diminish our presence in Iraq. If the democrats really were trying to make policy then they would have introduced a substantive resolution. But, of course, this is more about style points than substance.

Al Franken running for the Senate

With the statement "Minnesotans have a right to be skeptical about whether I'm ready for this challenge, and to wonder how seriously I would take the responsibility that I'm asking you to give me," Al Franken announced his candidacy for the senate seat currently held by Norm Coleman.

Franken, you may remember, was one of the inspirations behind Air America (For those of you with short memories you may remember that a bunch of liberals - excuse me progressives - launched a radio alternative to conservative talk radio that by any account was a pretty quick failure - Franken was the anchor of that disaster.) He is also an author of a series of books that can be found in the discount bin of any bookstore. Several of his books have something in their title to do with liars or idiots. His apex of popularity was during his time on Saturday Night live where one of the characters he played was a guy named Stuart Smalley. The Smalley character may be a reflection of the guy that is most apt. Smalley was a character that engaged in endless (and some thought funny) psycho-babble. His tag line was "I'm good enough and I'm smart enough and doggone it, people like me (which evidently Smalley/Franken has been trying to prove since he left the show). What Franken has done over his career could not be considered art - so it is hard to think about this as art imitating life.

Mike Ciresi, a prominent trial lawyer, is likely to be (Smalley's) Franken's primary opponent. Coleman may have a tough race because of discontent in Minnesota.

A generation ago, another comic, Pat Paulsen, announced several times that he was running for president. He produced a mildly funny set of routines as to why a comic should be elected to the presidency. Paulsen's tag line was "Just a common, ordinary, simple savior of America's destiny." His commentary was often funny and on point. My favorite line of his was "If elected, I will win." The sad thing about Franken is that he thinks he is serious.

GASB 45 - A real test of accounting integrity

In the last few months there have been some wails from the public sector about GASB 45. The Government Accounting Standards Board (GASB) is the group that sets the standards fro governmental accounting. GASB 45 (Accounting and Financial Reporting by Employers) requires governments to include actuarial estimates of the future costs of benefits promised to employees. Although the standard was promulgated in 2004, it began to take effect in December. For smaller units there are delays of one or two years.

GASB 45 parallels FASB (the same standards setting except for private sector employers) 158. In both cases the assumption is that the reporting entity (either governmental in GASB or private in FASB) should in their accounting statements realistically estimate what the future value of pension and health obligations will have on their expenditures. For a long time, many government agencies have blithely assumed that they can hand out future benefits without worrying about who will pay for them. Many government employers, for example, offer lifetime health coverage for retired annuitants that might be worth $10,000 or more a year, per employee.

GASB 45 hit big in California when a couple of cities admitted that they had no way to fund all the goodies that they had offered to their employees. Most private employers have made two changes in their retirement policies over the last thirty years. First, they have scaled back or eliminated generous health plans for retirees. At the same time they have switched from defined benefit to defined contribution retirement plans. Many government agencies still have defined benefit plans - which are those that calculate a retirement benefit based on years of service and highest pay. Defined contribution plans have several benefits both to employers and employees. First, they give the employee an asset that does not die when they do - but at the same time they require employees to begin to think more carefully about retirement options and financial issues. Among the societal benefits, if individuals begin to consider the financial consequences of their own actions, they might well be more cognizant of the financial consequences of governmental actions. Second, for employers the actuarial soundness of the plan is based on two relatively simple issues - has the current contribution been made to fund the current year obligation and has the employer done a reasonable level of due diligence to assure that the savings are accumulating in a responsible manner?

Without GASB 45, governmental entities would be forced to arbitrarily curtail some of these benefits or to go to the taxpayers for a boatload of more tax revenues to fund the outrageous policies. But some public employee unions are already whining. This will make it a lot harder for governmental agencies to fudge their numbers hoping that someone (the taxpayer) in the future will bail them out - let's hope the political class is up to working with honest numbers.

Smith on Productive and Non-Productive Workers

In the Wealth of Nations Smith spends a lot of time on the value(s) of labor. He makes a couple of interesting points. For example, he divides the world into productive and non-productive workers. In the former are people who use capital stock or the rents of land in their activity. In the latter are those who do not. He specifically includes lawyers, priests, opera singers and a raft of others of similar occupations.

One wonders about a couple of things. First, in today's world where the production of opera singers, for example, can be made into a tangible product, would they still be considered to be non-producitve? Similarly, would artificers who create ideas be considered productive or non-productive? One wonders how Smith might think about the increasing role of the service economy.

He has clearer statements about government workers. He describes their work in fairly stark terms - for example he describes the "violent and forcible extraction" of tax revenues. He goes on to suggest that nothing government does adds to the productive capacity of the nation. Indeed, at one point he posits that if the profligacy of government does not bankrupt a nation there is little that the role of private citizens can do to do it.

San Disk's Statement on DRM (annotated)

An Open Letter from Eli Harari, Founder, Chairman and Chief Executive Officer of SanDisk Corporation with annotations to help understand what he is really saying....

As a loud debate continues over how digital music is sold and used by consumers, SanDisk believes there is another way to address this issue—an approach less confrontational than that voiced by others in the industry. I guess the attacks by the RIAA on the rights of end users are not considered confrontational?

The answer is to protect the interests of everyone involved, not to chastise rights holders for trying to safeguard the entertainment they create and support. Musicians create music - the record companies do not. Yet, their insisitence on the current uses of DRM inhibit the growth of electronic forms of music.

As a leader in the digital music industry, SanDisk has always supported freedom of choice for consumers. At the same time, we believe that entertainment companies and artists must be compensated. But should the existing system of compensation the producers more than they are worth be continued - should there be a rebalancing toward entertainers?

Consumers deserve fair use of the digital entertainment they purchase, with the freedom to enjoy content on any device they own. SanDisk’s approach is to let consumers decide how and where they acquire and play back their music.

Proprietary systems, in short, aren’t acceptable to consumers. In recent months, there has been a rising chorus of complaints in Europe about the anti-competitive nature of closed formats that tie music purchased from one company to that company’s devices, and tie that company’s devices to its music service. With several of the major licensing companies in Europe is this about consumer rights or producers?

SanDisk is already offering an alternative with its Sansa line of MP3 players, which connect to many major online music stores, including Rhapsody, Napster, URGE, Yahoo! Music, emusic and Best Buy Digital Music Store. Users purchasing songs from those services can also play them on many non-SanDisk devices. SanDisk and our partners have full support from the four major music companies, and we believe our offering is no less secure than closed systems.

What’s more, the decision on using digital rights management (DRM) should rest with the music industry, not with device makers. Tell that to Sony and the Beta format - this is ultimately about the consumer not either the device maker nor the producer. A better market would allow the consumers and the artists to connect more directly.

Time and again, we have seen that open choice prevails. The “walled garden” approach may offer a smoother user experience in the short run, but ultimately restricts user choice. Protecting music doesn’t require confining consumers to a single company’s service or devices. It’s time to tear down the walls. Hmmm, seems like I have heard that earlier in the week - perhaps from Steve Jobs.

SanDisk is looking at the big picture, by creating solutions rather than conflict. Why this concentration on conflict? Isn't that the point? Sometimes conflict is essential for advancement. Building an infrastructure to give consumers fair access to digital content while protecting content creators is vital for the long-term health of the music industry, as well as to our business and to our competitors. SanDisk stands committed to making this happen.

Market Share by maker - Apple 82.7%, SanDisk 18.4% at December, 2006

The Shade Tree Campaign

Earlier in the week I had the opportunity to hear Stu Rothenberg (of the Rothenberg Political Report) and Charlie Cook (Cook Political Report)talk about the prior and coming election. Cook made an interesting analogy about the beginnings of the 2008 race for president. Cook argued that the current rules for fund raising will create an analogy to a forest where there are two big shade trees (the Hillary and the Obama) which will block any sunlight for the lesser candidates. If one of them begins to falter the chance for some of the lesser candidates will possibly emerge. But if that does not happen, they will have a very tough time in getting recognition.

He also argued that the Hillary forces don't worry much about the high forty percent negatives that their candidate has. Those numbers merely suggest that Hillary will concentrate on winning the percentage of voters who potentially would vote for her - in essence they have to concentrate on the 10% or so in the electorate that is undecided. I am not so sure that logic is dispositive. Hillary has a dual problem - that being there are a large number of voters who would never vote for her (in the high 40% range) and another group that is suspicious of her (the Daily Kos types who think she has been too supportive of the war). She does not have the possibility of having a Bush on the ballot in 2008 so I believe her candidacy will sink or swim on issues not related to her GOP opponents.

On the GOP side Rothenberg argued that the two front runners were McCain and Romney and the Guiliani had not yet proven he was serious about his candidacy. I think the setting for the GOP is a lot more tennuous. I am not sure that McCain will not, at some point, blow himself up. Unlike Hillary (on the Dem side) he is not a consistently disciplined campaigner. The press has given him mostly a pass so far but if he starts to become a front runner they might well give him a tougher time. I can't believe that Romney, a candidate who is unlikely to win his own state, is going to be there at the end of the primary season. He certainly has some likeable qualities but I am not sure where he comes out.

Thus, at this point, when the American people are fundamentally disinterested, I do not see as clear a set of signs as the two pundits about where the 2008 election will head - save for one which I will repeat. I think the American people are tired of the two dynasties of the system (Clinton and Bush) and I find it unlikely that a person with either of those names will win the November elections.

What is it about Airplanes and the Speaker of the House?

One of the downfalls of Newt Gingrich was his whining about not being included on Air Force One in a trip coming back from a trip to Europe. Now the new Speaker has found herself in a flap because she requested a plane from the Air Force to fly her back home to San Francisco. This week her office issued a statement where she tried to imply that they we camping on her request because she is the first woman to hold the Speakership. Nonsense. The GOP tried to get a story going that the request for a plane large enough to be able to fly the Speaker to California would contribute to global warming. Nonsense again. But there is a story here.

One of the concerns I have about the current state of our political system is the increasing distance that our public officials have from their public. When you now enter any of the congressional offices you need to go through security and are restricted from going to certain places in the Capitol. Most government buildings are locked down in the same way. Many members rarely have the opportunity to mingle with their constituents. Elected officials, for some marginally good and some significantly bad reasons have claimed the need for these additional security measures because of their status. They should rethink those security demands.

Ultimately, the new Speaker could earn a lot of points by flying commercial back home. There is a very small chance that the Speaker will suffer any significant increase in security risk. Her greatest risk would be to have to try airplane food. But the potential benefits of at least seeing the American people on a regular basis would be huge.

Smith, Sheep and the RIAA

I have progressed beyond the extended discussion in Smith about the value of sheep, tallow and hides in the Wealth of Nations. As a way to get through his labor theory of value Smith goes on an extended discussion of the relative value of commodities under various conditions. It is interesting but only to someone who is very interested in determining the relative value of various hides or gold or silver or tallow at various times and various places. As I was reading this section I was reminded of how long it took me to read all this stuff the first time; my digression is not as long as Smith's but you get the idea.

Smith makes this dandy comment in the book that producers will attempt always to increase their profits and decrease their competition - an apt description of the recording industry and its consistent attempts to interpose their rights over individual purchasers rights.

Remember the Kessler cycle. In the case of the RIAA, the producers are the people who DISTRIBUTE music. (These companies do not write music or play it - they serve a function as a distributor - but they consistently make claims on our pocketbooks by trying to accentuate profits and decrease competitors. What is interesting is how most of the artists see the transaction. I have a good friend in Mexico who with with wife produces Mexican classical music. (There is a rich library of Mexican baroque music.) This guy is a perfectionist. When he sells one of his CDs it has been nurtured over a very long period of time. The CD sells for something in the range of $15 but he gets less than a $1. The work to identify the music, transcribe it, play it and record it all comes out of that buck. My friend does this because of his love for the music - but he will certainly not get rich from all his work. He then gets an RIAA member (probably one of the big four) to create the CD and than distribute it. The distributor costs of producing the CD amount to less than a buck - so profits are pretty large. A lot of those profits have been used to aggressively pursue suits for the violations of the DCMA (maximize profits and reduce competitors). But as Kessler pointed out at some point the established way of doing things begins to change. There is pretty good evidence that the RIAA's tactics are beginning to become less efficacious.

A couple of things are happening. It is now easier to distribute music without the big four companies using electronic distribution. The total price of the songs is cheaper but the opportunity to allow the musician to keep a larger share are very much better. The Right Brothers, whose Bush was Right was a big seller, is an example of that new kind of distribution. At the same time the RIAA's aggressive tactics are beginning to be less effective. That is because courts have begun to recognize the outrageous nature of the the greedy claims made by the Association.

In this case, technology is throwing a wrench in the attempts by these distributors to increase profits for themselves (not certainly for most performers) and decrease competitors.

A couple more comments on global warming

Russ Roberts at Cafe Hayek did a post yesterday about the political economy of the global warming debate and got a bunch of comment.

One, from me, should have been expanded a bit. The economics of which side you are on really tell you something about why the debate continues to proceed apace. I mentioned in my earlier post, in response to the UN press release, that I thought The Structure of Scientific Revolutions was a good starting place for the discussion. While I was in Washington I got a call and a question from a friend who had read my original post but was not familiar with Kuhn's thesis. I short-handed the idea. So here is a bit better treatment. Kuhn argued that science goes forward incrementally mostly. People get an idea and then others help to develop and elaborate it. But at some point, an upstart discovers a problem with the general theory. At first, the supporters of the existing idea defend it, but then the paradigm (a big concept for Kuhn) shifts. Before Copernicus, everyone thought we were geocentric and while the solar centric universe theory was coming into prominence there were still forces which tried to enforce the old idea. I pointed out the parallel to David Kessler's notion of technological innovation - first explained in Michael Lewis' book Next; the Future Just Happened which suggests a broader theory about any idea's elaborations but that longer discussion is for another day.

If Kuhn's basic idea is correct, and I think it is,the cost to a scientist who has questions but goes along with the idea of global warming is very small. The scientist, at least for now, stays a part of the group. They probably, at least for now are held in esteem by their peers and more likely to get peer reviewed research money to prove the hypothesis. On the other hand there is some cost to being on the other side. It may be a bit harder to find funding to disprove a hypothesis - global warming does not exist and you risk being ostracized out of the peer community. The incentives for politicians work in the same way. Those who advocate the problem is real, have a larger incentive than those who do not. They can argue for the trend and when and if definitive evidence comes available they are in all liklihood out of office. There is the added incentive, that for some politicians naming this problem also allows government to help "solve" it.

The Global Warming advocates will soon face a dilemma. It is unlikely that our demands for carbon based fuels will be reduced significantly by demand reductions in needs of the power grid. After you create all of the wind and biomass and geothermal that is feasible it will still be likely to need some additional source - which in my mind suggests nuclear power. That will cause dilemma horns of significant proportions for at least some of the supporters of Global Warming. We're not likely to give up our creature comforts like air conditioning and computers and all of the other technologies (efficiency and alternative technologies) will not breach the growing gap.

The pictures here are of Julian Simon and Paul Ehrlich. Ehrlich is a lepodoptrist who peddled lots of rubbish in the last century about a population bomb. At one point Simon, an economist, challenged Ehrlich to a bet which would disprove Ehrlich's Malthusian projections. He suggested that a market basket of commodities would decline in real value over a decade and he would take the "under" to Ehrlich's "over" on that basket chosen by Ehrlich. In the end Ehrlich lost and Simon was correct in his assumptions. But that did not deter Ehrlich from continuing to preach "chicken little" science.

One final comment. One of the first of these projections like the current debate about global warming was done in the Second Treatise by Thomas Malthus. Malthus argued that our ability to procreate exceeded our ability to innovate. ("The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race.") Two things should be noted about the Second Treatise. First, it was based on faulty modeling and data. Malthus had used data from growth rates in the American Colonies without discounting for the numbers of immigrants. (The data, at least according to some came from Benjamin Franklin.) Malthus was wrong in part because of the invention and quick implementation of the steel plow. But the second point is even more telling, Malthus wrote the Second Treatise to make a political point. That may be true in this debate also.

Steve Jobs is Right!!!!!

Yesterday Steve Jobs released a letter to the public calling the big four record labels to drop digital rights management (DRM) from their recordings. The developers and users of DRM claim that it is necessary to protect their intellectual property, in essence to restrict the ability of the purchasers to use the content they have been sold in the way that suits them.

Since 1998 the US has been under something called the Digital Millennium Copyright Act (or DCMA) which among other provisions criminalized the circumvention of technologies designed to restrict private use. DCMA also followed the American tradition that dates back to about 1913, where copyrights, which under the original terms of the Constitution were supposed to be for limited times and durations, were extended beyond their original standards. Thus, in one fell swoop Congress restricted the private use of purchased material that was almost unprecedented both in terms of restrictions and severity of penalities but also extended the terms that the owners of copyright could hold these rights.

Jobs stepping into this is a bit of an interesting twist. Apple uses its own DRM to limit the copying of iTunes music to five devices. He claims that as part of the agreement with the big four that Apple was also required to develop a DRM which prevents their music from being copied to alternative devices (other MP3 players, for example). Currently about 3% of the music on the average iPod is purchased from iTunes. He offered two alternatives to the current system. (Assuming that continuation of the current system that limits the purchase and use of music to a single type of player is not a good idea.) The first alternative would be for Apple to license its DRM technology to the other companies (mainly Sony Connect and Microsoft’s new Zune player). But he argues that creates its own problems. Keeping the secrecy of the technology in DRMs is tough and would be a good deal tougher with lots more eyes on it. His second alternative would be to eliminate the DRM from electronic music. That is the current system for people who buy a CD. In 2006 there were 10 times the number of songs sold without DRMs as sold with them. Jobs concluded that “Apple will embrace this wholeheartedly.” His case is a strong one.

There are two other footnotes to the story. Yesterday a Norwegian official said that Apple is “skirting” issues on DRM and should be forced to open its DRM system to competitors. Torgeir Waterhouse, a “senior advisor” to the “Consumer Council” said Apple was hiding behind the record companies. As Jobs pointed out in his letter, a good deal of this problem is EU based - of the big four record companies EMI is British, Universal is owned by (French) Vivendi, Sony BMG is owned by Bertelsmann.

The Recording Industry Association of America lost a case last summer with a peer to peer file sharing service. Debbie Foster, who had a case against her dismissed, had sued for the RIAA to pay her legal fees and according to an order from Judge Lee R. West, ordered the RIAA to pay “reasonable” attorney fees. This case was typical of the kinds of things that RIAA has pursued. Ms. Foster had no knowledge that her internet connection was being used for downloading and yet the RIAA went after her with the all the force they could muster. Shame on them-but then that is generally how we should look at their actions. In the Kessler Cycle, discussed on this blog several times, there is a stage where the established technology players try to enforce their outdated technology through courts, legislatures or censures. This may slow the RIAA down from its' greedy and often unconscionable actions against private citizens.

Headlines tell the story

Earlier in the week the Washington Post covered the debate about the fake resolutions on Iraq thusly GOP stalls debate on Troop Increase. The NYT followed suit with GOP Senators Thwart debate on Iraq Build-Up. I searched a long time on both sites and could not find the following headlines from the last congress – WP – Democrat Senators stall debate on Bush Judicial Nominees or NYT – Democrat Senators Thwart Majority of the Senate from Voting on Judicial Nominees. It is not hard to figure out why I had such a hard time finding those headlines.

An Archaic Remnant of LBJ's Tax Policy

The attached chart is the annual summation of something which needs to be thought about a bit more. In the mid-1960s LBJ's Tax Policy Assistant Secretary came up with the notion of "tax expenditures" - he reasoned if you can track appropriations you should also track dimunitions of the tax base and he named these things tax expenditures.

Look at the list and you might go - so what (even if there is some argument about whether the real impacts of the "expenditures" are correct - which most people who know this stuff do not believe). Look closely at the first ten and there are some legitimate and illegitimate issues in public policy. Would it really be a good idea to eliminate the preference on capital gains and allow the government to reap the benefits of inflation and also depress the growth in capital stock? A couple like step up basis, are involved in the inheritance tax (or death tax) debates - if you buy the death tax - you probably buy the step up change (or else you go back to the nightmare that was in the IRS code briefly after the 1954 tax revision where holders of appreciated assets had to go back and find original values.

But there are also some other things that might bear looking at - the president's proposal on the absolute deductability of health insurance premiums is something that is on the table - part of our problem in health care costs is the structure we have created in the tax code. Some, although they might be worth looking at are off the table because of the interest groups represented (there is very little evidence that the mortgage interest deduction does a significant boost in home ownership - data from other nations where there is no deduction are not appreciably different).

My point is here is a report required in law which does little to improve the quality of public discourse - except at the extremes.

Thinking about Annual Meetings

For the past 30 years I have been attending the National Association of Independent Colleges and Universities Annual Meeting which is held each year about this time. I was struck this year by a couple of things.

#1 - New Members of Congress should learn how to answer questions. Dave Loebsack spoke to us. He is the guy who beat Jim Leach. I do not have an opinion on the new member - he seems like a nice enough guy - a former college professor. But his answers to questions from a friendly audience, were long (too long). I always liked the response I once saw Bill Buckley give to a question - which started with Do you believe and then went into several paragraphs of qualifications. Buckley looked at the questioner who had tried her best to try and hook the pundit and simply answered "No, next question."

#2 - Congress has forgotten some basics. Several members of congress complained about how busy they were in various ways. I would argue that is their own fault. When I worked on the hill there were three house buildings and two senate ones. Now there are tons more. I am not sure we get anything more for all those extra people except complexity.

#3 - Old buddies matter. I was supposed to go to a lunch yesterday to see a friend from California get an award he deserved. Alexander Astin, who is a retired professor of higher education at UCLA, was given the Henry Paley Award - which is the highest honor the association conveys on someone who has made a consistent contribution to higher education. Astin pioneered the student attitudes survey which gives us a profile of new students each year. He is a conscientious researcher who with his wife Lena (a co-conspirator of the first rank) has contributed immensely to our understanding of what students believe and think. But after I had said hello, I got pulled away with two other friends and we went out an had a grand lunch. The two friends were the former VP for Governmental Relations at Johns Hopkins and the former General Counsel of the umbrella organization for higher education. We had a good time talking about earlier times - the guy from Hopkins once worked for Daniel Brewster - the senator and the counsel is now with a big law firm doing what he has always done - bringing people together to think about higher education issues. I was reminded of a Steve Muller quote which I have used (Steve was a founder of the National Association and also president of Hopkins). Steve said "We have two tasks to accomplish today, I have been asked to speak and you have been asked to listen. If you finish before I do, please do not tell me." We talked about the founding of the organization (which the guy from Hopkins had a big hand in and which Muller was the first chair) and about some of the early battles where Muller's leadership was so crucial.

#4 - We had two speakers of national reputation. Francis Fukuyama (who I like a lot in print) who was pretty flat. His speech, mostly about the US role in the world, was not as vibrant as his writing. The other presidential historian Michael Beschloss(who I also like as a writer but have not been as impressed with as a PBS commentator - on the very rare occasions I watch PBS). Beschloss was interesting and amusing. I am not sure what to make of it.

#5 - The best speech of the time was from Richard Broadhead, president of Duke University. His speech was well crafted but a clear response to many of higher education's critics. He described some recent travels in Asia where leaders of higher education there are admiring of our system which produces such independent thinkers. Broadhead did not try to gloss over higher education's problems but he did suggest that the strength of the American system is based on its diversity - one size does not fit all and we seem, at least until some of the critics like Secretary Spellings, seem to have figured that key organizing principle out. Among other things that the Duke president said were "the forms of rigor that Americans tend to look to as overwhelming strengths of foreign education are viewed as a more mixed blessing by the leaders of those systems. Like us, other countries look to higher education to create the mysterious ingredient that will guarantee success for their society. But they worry that we, not they, have the recipe for that secret sauce.
One lesson I’ve learned is that cross-cultural education anxiety is endemic to the globalizing world, a burden we all assume when we enter the arena of modern international competition. It’s the nature of worry to persuade one that oneself has much to worry about, while others, lucky stiffs, do not. But the worry we think our peculiar possession is the very thing we share with potential rivals: in the opportunity-rich but rapidly metamorphosing world we inhabit, we must all wonder how to go about preparing today’s talent for tomorrow’s tasks, and whether the training we’re giving is the one that will make the right difference over time. "

And he also said "American higher education is a crazy quilt of institutions: public and private, liberal arts colleges and research universities, secular and faith-based institutions, historically black colleges and universities, women’s colleges, arts schools, community colleges, technical colleges: you name it, we’ve got it. And not only do schools have very different missions and different audiences. They live and work independently, rather than parts of a coordinated whole.
The relatively uncoordinated nature of this system may have costs. It does mean that we lack a centralized means of planning how to meet our country’s higher education needs. But our autonomy and heterogeneity have been essential to our strength, and so to the strength of our social contribution. Collectively, we offer a universe of complementary opportunities and a level of vitality that you do not find in places with lots of central oversight and control."

The speech, if it is available on the Duke website, should be widely read - it is a rich commentary on the strengths and needs to improve for this important economic driver of the American economy.

Does Thomas Kuhn have something to say on Global Warming?

In a classic one-two, during the week Al Gore gave a speech to a group in Silicon Valley and a distinguished group of scientists issued a periodic report (under UN auspices)- both argued that the evidence for global warming is overwhelming. Gore even made the statement that he was involved in a campaign more important than a run for the presidency. When as ambitious a politician as Al Gore (Harvard Cum Laude in Government, dropped out of Vanderbilt in both Theology and Law - so without legitimate science credentials) seemingly renounces his ambitions to run for president, it makes one stop and think.

Kuhn wrote The Structure of Scientific Revolutions, which at least when I first started my doctoral program was required reading, in which he argued that science goes through a predictable set of changes to come up with new ideas. Kuhn's theory is not unlike Kessler's cycle(discussed earlier in this blog) on technological innovation. In both, the established orthodoxy elaborates their idea or system until some upstart comes and destroys their organizing principle. Until Nicolaus Copernicus figured out that the sun is the center of the universe, there was a lot of scholarship suggesting that the earth was the center. As you look at science's involvement in public policy issues - you see this orthodoxy defense mechanism in many places. It seems to be especially vigorous in this discussion - that may be because the science is good or because we are going down the wrong path. The vehement statements by a large portion of the scientific community seem incongruous with the scientific method that all of us learned at some point.

There are several reasons to take what these "eminent" scientists have purported to find with some skepticism. The consensus is a bit too neat.

#1 -The chair of the House Science and Technology Committee (Bart Gordon - Graduate of Middle Tennessee State University and a law degree from University of Tennessee - not exactly a real background to be able to say this) said of the report "a unanimous, definitive world statement" on climate change that, if anything, was too conservative. "It's time to end the debate and act," Gordon said. "All the naysayers should step aside." That is pretty strident - why should they step aside?

#2 - The NYT in its coverage of this has one small item which raises some concern about the report. They offer the following quote from an opponent "At the George C. Marshall Institute, a think tank that receives funding from Exxon Mobil,(It has become hackneyed to see the Times do these biased appositives) chief executive William O'Keefe and President Jeff Kueter issued a statement urging "great caution in reading too much ' into the report until the panel releases its detailed scientific documentation a few months from now. Claims being made that a climate catastrophe later this century is more certain are unjustified," they said, adding that "the underlying state of knowledge does not justify scare tactics or provide sufficient support for proposals . . . to suppress energy use and impose large economic burdens on the U.S. economy." - It bothers me that they point out funding for one source of the story (which they disagree with) but never look at the sources of the funding for the pro-Global Warming people.

#3 - There are some pretty eminent scientists on the other side of the ledger. For example, Richard S. Lindzen
Alfred P. Sloan Professor of Meteorology at the Massachusetts Institute of Technology (Member of the National Academy of Sciences and a whole lot of other eminent scientific places) thinks the global warming supporters are sloppy with their data. Ditto for David H. Rind, climate researcher at NASA's Goddard Institute for Space Studies in New York and adjunct professor of geological sciences at Columbia. Roger Pielke, a respected atmospheric scientist at Colorado State who was involved with the drafting process of one of the reports and said, "I'm disappointed in the whole process. This has been the most closed, unhealthy scientific process I've ever been involved in." That type of opposition should not simply step aside as the congressman suggested.

#4 - Then there is the inventor of the internet, Al Gore (During my service in the United States Congress, I took the initiative in creating the internet). It is hard to take this guy seriously on anything. He was a dogmatic member of congress, a dogmatic VP and he remains a dogmatic public figure. His certainty is troubling. To give you a good idea about Gore - look at the picture. His recent speech in the Silicon Valley has him using a contact mike and the normal mike on the podium.

#5 - Research from ice cores suggests that the temperature of the earth has been rising for the last 200 years. (Most of it coming before 1900). Core temperatures have been rising at about .9• Fahrenheit. The case on the other side of global warming should give everyone a bit of a pause. Lindzen even believes that the computer models which suggest that the gasses will create a linear degredation of our planet that will continue in perpetuity is nonsense - create more greenhouse gasses and the process begins to slow down because of the very trends that the supporters of global warming argue are there. There is some pretty good evidence that climate for a very long time has run in 1500 year cycles.

#6 - The Kyoto Treaty was a travesty. It was a classic lousy political decision that all of the developed nations have rejected - it is just that the US took an overt step. Like many things negotiated under the UN (United Nations Framework Convention on Climate Change - UNFCCC) the solutions in it seemed like a pat set of answers to increase the size of government.

#7 - At one point in the last 30 years, a large group of scientists (at least some political ones) made the claim that we were going into a new ice age - so why the change - from a non-scientist's perspective that inconcruity is something to watch.

So what's a person to do? I guess I do not know. This is one of those bizarre notions where a good part of the political world and scientific world are in concert - and yet it is increasingly hard to understand when the political world is infecting the scientific world. One wishes that there might be a bit more balance in the discussion, but in this case wishes are not likely to happen. With all of those reservations, we should proceed with caution. But with people like Gore and all of the cognizanti of the left, we may not be given that chance. I come back to the quote from Einstein "Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius -- and a lot of courage -- to move in the opposite direction."

Beginning a third year

Today represents the beginning of the third year of Rambles - this is post #774 - that represents a bit more than one post per day. We've had just under 9000 hits on the site (or a bit more than 12 per day). Of the posts that have been indexed (this was a service that blogger introduced after the blog had started) there have been 472 cites (in many cases I will post more than one topic in a post). The highest number of references has been in The Political Class (100) and Economics (50) but Mexico, Baseball and a number of other issues (including Philosophy) have had lots of posts.

The most read posts in this blog were about the leadership problems at Gallaudet University. But other popular posts were about Mexico and some of the writing I have done in re-reading some of the classics in economic and literature. Of the comments I have received many have been helpful - only a couple have been hurtful (and those were from a former radio host in the Sacramento area who evidently had too much time on his hands).

Clearly, Rambles, while rating pretty high among local blogs, has not reached national heights in popularity. For the first year I consistently ranked in the Sacramento top 20. (I took their pointer off at the beginning of the second year.) But as Hugh Hewitt pointed out in his book on Blogging (which was part of the inspiration for this project) - even with a small readership there are benefits from doing this on a regular basis.

One of the benefits of this blog has been some contacts around the world. During the 2006 Mexican election, I did a lot of posts on my thoughts on the contest. As a result of those posts, a group who had been active readers of the Post's coverage invited me to join their discussion group. It has turned out to be a series of very interesting exchanges.

One unresolved issue that still puzzles me. The highest hit number on a post is actually not on a Rambles post (although it is linked in several blog indexes). It is a picture I took in Naolinco Mexico of one of their beautiful streets. That picture both on Rambles and on my flickr site has been hit a lot of times. I did not think the picture was that special - but evidently someone did.

Thanks again to all of you who have read and commented on this blog.