Thursday, March 31, 2011

Envy in the 10" variety

Craig Mundle, Microsoft's Chief Research and Strategy Officer, must take lessons from his boss Steve Ballmer.   At a lunch in Sydney he was quoted as wondering whether the Apple iPad would "remain with us or not."   He argued that the land between smart phones and laptops is not likely to stay around - more and more of our work will be done on phones.   He envisages the (Microsoft, now there's a hint) Kinect (which seems to be selling pretty well) being the connective device in the future.   People would lose the thing they carry around and simply connect to the cloud.

Andy Lark, Dell's global marketing head, said (also in Sydney) that he thought the iPad would succumb to the open standard of the Android platform.  He commented "Apple is great if you’ve got a lot of money and live on an island. It’s not so great if you have to exist in a diverse, open, connected enterprise; simple things become quite complex,”   Lark argued that with a keyboard and a mouse and a case you would be spending "$1500-1600."   Evidently math is not one of Lark's strong suits - even assuming you bought a high end iPad ($829) and the all the other stuff - the total price might reach $1150.   But from my time with using the iPad, I bought a keyboard which I do not use much and no mouse.    Dell won't release its' 10" competitor to the iPad until later this year.

Stephen DeWitt, a VP at HP said in Las Vegas "Apple's relationship with partners is transactional, completely. Apple doesn’t have an inclusive philosophy of partner capabilities, and that's just absurd,"   That may be true but I expect we will not be seeing as many HP printers on the Apple website in the future.  HP, by the way, is betting the Palm operating system (it bought the company last year) will be an effective challenge to the iPad juggernaut.

The reality is that no one knows where this space is going, even Apple.  Like the iPod Apple put its footprint in the space first.  But it is likely to evolve as people continue to find new ways to use this kind of device.   Right now Apple has 15 million units in the marketplace.   That seems like a much better place than the Avenida de la envidia.

Wednesday, March 30, 2011


One of the handiest things I have on my iPad is something called Evernote.  It took me a long time to figure out how to use it.  Basically the service (the premium one for $45 a year is a great deal and allows all sorts of additions including saving file types like Microsoft documents in their original format) allows you to keep all sorts of documents in the cloud and then access them and work with them and send them from almost any type of device.   Thus, I now back up all my reading on to evernote.  When I see something I clip it.  You can define the documents in a number of ways to make them easier to find.   I hope sometime soon it will help me get rid of a lot of desktop clutter.

Monday, March 28, 2011

Warning shots

The Assistant City Manager of Sacramento wrote a letter to the City of Anaheim and said don't mess around with the Sacramento Kings unless you can demonstrate that the city will be repaid the $77 million owed to Sacramento.   Joe Maloof one of the owners responded by saying "That letter is completely wrong, and it was uncalled for – below the belt – and it's a shame it had to come out of his office," He went on to say that the Maloofs have always paid their obligations.  Maloof went on to yammer "It's not for the mayor or anybody (in the City of Sacramento) to interfere with our business."

Well EXCUSEEE MEEEEE Mr. Maloof, you've left Acro in a mess, you've incompetently run your franchise into the ground and you are sneaking out of town because the good citizens of Sacramento do not believe it is their obligation to pay for the facilities in which they run their business.

R.E. Graswich, the former Bee sportswriter summed up feelings in the city “We’ve grown up as a sports town,” Graswich said. “We’re not going to back any crummy product they put on the floor. We’ve got bigger problems —12.5 percent unemployment, people being laid off or furloughed, their homes in foreclosure. The Kings would be a nice distraction if they were any good, but they’re not.”

Congratulations to the City of Sacramento for finally facing down these two bit bullies.  We want our dough before you slink out of town!

(dumb) Political Calculation

I am at a loss to explain why the GOP in Sacramento voted against Governor Brown's proposal to end redevelopment agencies in the state.   When the Kelo decision came down the GOP was all over the injustices of how eminent domain has been used to bash through middle and lower class neighborhoods.  Their arguments were right.  As I said at the time, the Kelo decision was one of the Supreme Court's least finest hours.

Redevelopment in California has followed the process it has in other states.  A lot of the decisions have put public decisions around things which would be inadvisable in the marketplace.  Yet the GOP seems to defend this somehow as an essential part of local control.    That is nonsense.   Ending this boondoggle would accomplish two things at once.  It would reduce potential eminent domain abuses and it would force local governments to be a bit more judicious about their decisions on development programs.

Saturday, March 26, 2011

The WSJ on Tax Rates

In an interesting article in the Saturday WSJ covered the perils of progressive tax systems.   Over the last two decades, in the name of increasing progressivity (or "fairness") in the tax system they have moved up rates for the very rich.   That has done two things.  First, the percentage of taxes paid by the top bracket has increased (while the lowest bracket's shares have decreased).   In California, for example, the top 1% pay 45% of the total income tax receipts.   That means that 1% of the taxpayers in the state offer up about 20% of the total tax receipts in the state.   In the last 30 years (since I finished a dissertation on the subject) the state's reliance on personal income taxes has increased so they now account for 43.9% of total taxes.

The second problem is a result of the first.  Volatility of incomes increases as you go up the income scale.  Thus, when the highest earners are in good shape they provide lots of money; but when their fortunes decline, so do tax receipts.   During the first decade of this century California's income tax receipts took huge swings.   That was partially a result of the booms and busts in Silicon Valley.   There is a related issue on this also - the highest income tax payers also have the greatest ability to migrate.  California has about 13 million taxpayers.   That means our fate is decided by fewer than 130,000 taxpayers.   According to the Franchise Tax Board's most recent tax statistics the number of returns claiming more than $1 million in income amount to just 42,500; even if you add in all incomes over $500,000 the number jumps to just 118,000.

Wealth Declines during the Recession

The LA Times carried a story yesterday on the comparative wealth decline by region during the recession.  The period of study is 2007-2009.  According to Federal Reserve data the recent recession has been harsher on the Western states than the rest of the country.  In the Western states 67.5% of the households saw their net worth fall, compared with 62.5% in the U.S. overall. The median decline in wealth was also much larger in the West with 27% than the national median of 18.1%.  In net worth statistics for households that meant a drop from just under $600,000 to $481,000.

Not surprisingly, the main declines among all households was in financial assets (stocks, bonds, retirement accounts) and in real property (first and second houses).   Median debt on both installment loans and credit card balances went up.   Before the recession, housing prices in the West generally (it is assumed that California, because of its size distorts the data) were frothier. 

Friday, March 25, 2011

Initial impressions of my iPad 2

I received my iPad 2 yesterday - even though I ordered it on the first day, it took 13 days to get it to me.  I opted to get it engraved which you could not do if you bought it in store.  The Photo is from Diario de Yucatan -where the 2 was just released.

Here are five quick takes on the new device.

#1 - It is lighter and feels better in my hand than the first version did - although with the new cover the weight and width are about the same.  The sides are tapered and that makes it a seem a bit more manageable.
#2 - The transfer was simple.   I needed to call AT&T to make sure that my unlimited data plan continued.  That was one 10 minute phone call.  AT&T does not tell you how much data you are using on the unlimited data plan - but with only 2 gigs in the more expensive plan - for now the $5 per month extra seems worth it.  The iPad 1 will now be a WIFI device which I think my wife may want to use but we will see how that works.  When she is on an extended trip, she could obviously opt to get a month's worth of data.  That flexibility is great.  There are lots of things you have to reaccredit - like passwords on some applications - but for the most part this was simple.
#3 - The cameras on it are OK.  The front camera has problems in low light but seems to be fine for video conferencing.  A lot of people have asked me if I use facetime a lot and the answer is that it is becoming increasingly useful.  I have a new granddaughter in LA and a 3 year old grandson who likes to video chat who lives nearby.  My business uses have been limited but I expect that might increase.  I like having the option.
#4 - Rearranging the tablet top - I took this opportunity to rearrange the look and feel of the device.  There are some APPS that I had purchased which I did not use much and a couple that have taken on increasing importance (EVERNOTE and GOODREADER) - they went to the front screen.   I've done a lot of testing of note-taking applications and have not found the perfect one - but my current favorites are UPAD and WRITEPAD).
#5 - The performance is improved but not in a spectacular way.

Thursday, March 24, 2011

The Dynamic Recovery and other fantasies

Durable goods orders (they are just like they sound) dropped by .9% in February according to the Commerce Department.   Excluding transportation equipment that is the second month of decline.   Orders for things like computers (capital goods) also fell by 1.3% which followed a 6% decline last month.

The Obama administration has hung its hat on unemployment claims which seem to be heading in the right direction.  They declined by about 5000 last week.   But many economists believe that these data series are flawed in that people who have given up looking for a job are not counted.

New home sales dropped 16.9% last month following declines in the last two months.  The median home price now reaches back to December,2003 for comparison.   Existing home sales fell in February, although that followed a couple of months of growth.  Some experts in this area suggest that the growth was conditioned on the number of foreclosed properties in the mix.

There are, indeed, some hopeful signs.  As the value of the dollar has declined exports are beginning to show signs of life.

Alan Greenspan in a speech to the CFR called the "Economic Costs of Governmental Activism" comments that  “Much intervention turns out to hobble markets rather than enhancing them.”   The evidence above seems to confirm the judgment.

Wednesday, March 23, 2011

Elizabeth Taylor

As I heard about the death of Elizabeth Taylor this morning I confronted some very mixed emotions.  On the one hand none of her movie roles and all of the celebrity gossip she lived with for most of my adult life were of any interest to me.   I have always thought Tennessee Williams' Cat on a Hot Tin Roof, for which she won an academy award, is one of those plays that will disappear quickly as time locks it into the depths of obscurity.   I do not remember Butterfield 8 - her other Oscar performance.   I thought all the drama around her and Burton was tacky.

But then you look at her role in the Aids crisis.  She began her quest when the disease was not well understood.  She helped to raise something north of $100 million.   And it seemed to be a role that she genuinely cared about.   On balance, even if my judgments on her acting career are accurate, her role in that part of her life merits some careful and thoughtful response.

One way to respond to the crisis in Japan

One of the consequences of the devastating earthquake and tsunami in Japan was the destruction of the stadium for the baseball team in the region - the Tohoku Rakuten Golden Eagles (also known as the Sendai Golden Eagles).    With all of the other needs of this region in Japan - restoring their baseball stadium might seem like a low priority. But I think it is a good idea. As I heard Frank DeFord talk about the idea on NPR this morning - the more I liked the idea.   I am not sure if the international relief agencies are stocked with dough for all the needs of the region - which are obviously both immediate and longer term.  But I also expect that the restoration of a civic resource will aid in the longer term rebuilding of the region.   But here is the "after" picture and that give you an idea of what needs to be done.   Baseball fans could pledge to help restore the stadium and with it a sense of normalcy which is likely to be lacking in the current environment.

Tuesday, March 22, 2011

Three Options for the Kings and one for the City

In recents days, as yet another mediocre season comes to an end, a lot of commentators have suggested options for Sacramento's hapless Kings.

Eric Hogue, a local radio host, yesterday suggested that the city begin to hold the owners, the Maloof brothers, to their contracts which would in turn force them to stay in the city for a couple of more years.  Hogue speculated that the Maloofs have a series of obligations that could tie them up in court if they do not fulfill them.   Hogue suggested that would keep basketball in the city for a time and would give the city a better chance to attract another team.   The consequence of that action, if indeed it could be done, would be that the city would continue to have a laughingstock sports franchise (as if that were not the case already) because the Maloofs would not spend any more money on the team (as if they have in the last few years anyway).  

The second option, that some local sports fans would like to see, is to beg the Kings to stay.  That looks unlikely.  Evidently the Maloofs have already made their deal with Anaheim.   One alternative to that has been for some local owners to buy the team from the Maloofs.   The possibility of that option is near zero.

The third option is a variation of the first but let them leave but force the owners to live up to their contracts.  The Maloofs clearly owe the city $75 million in penalties to be able to move the club for jumping out of their contract early.  From my perspective it is likely they will try to slip away.  But the city attorneys and anyone else who could help should begin proceedings to understand what assets the Maloofs have and to begin to attach them with vigor.   If there are other obligations in the city - those two should be enforced with the rule of law.

As noted in an earlier post, some sports fans have suggested that without our basketball franchise that Sacramento will become a "cow" town, an also ran among cities.   The more I have thought about that logic, the less compelling it becomes.   Is Chicago a great city because of the Bulls and the Bears, the Cubs and the White Sox?  Or was it a great city before the sports franchises came there?  Is Albuquerque  a lesser town because it only has a AAA baseball team?   The simple answer is a city is vibrant or not because of all the things it offers - sports do not make or break a town.  When we learn that the city will be ready to continue up the ladder of prominence.

Friday, March 18, 2011

More than a rounding error

The Congressional Budget Office today released their estimates for the President's budget over the next decade.  The Obama Administration had suggested that over the next decade deficits would total $7.2 trillion(with a T!).  But CBO says the chief economist in the Administration, evidently someone named Rosy Scenario is a bit off.  The CBO says the figure is more like $9.5 trillion.   And Ms. Pelosi claims the democrats are serious about deficit reduction.

In Case You Missed this

CNBC published a short article on the alternative CPI - the graph is presented here.  The standard CPI excludes some elements like food and energy because of their inherent volatility.  That may make sense in some economic calculations but it does not for figuring out, paraphrasing President Reagan, about one of the last times individuals could see their everyday expenses ballooning "Are you better off now than you were" before the 2008 election.

This chained CPI, which does include those elements hit a record.   When you look at government policies like support for ethanol, excluding things like corn from the regular CPI does not make sense.  CNBC suggests that the government should do some smoothing but should publish both numbers more widely.  That makes sense but the more important point is that government statistics are creations (not that they are intentionally fudged) and you need to know the underlying things that go into them to understand whether the numbers that many of us rely on actually mean what their interpreters say they do.   In the case of the CPI, we need both.  In the case of unemployment numbers, in addition to the numbers on who took out claims we need to know who is no longer looking for a job and who is underemployed (a very hard number to discover).

Wednesday, March 16, 2011

Rope-a-dope budget strategy

The House vote on the Continuing Resolution yesterday was a disappointment.   During the year before the 2010 election the democrats could not pass any of the appropriations bills.  So when we came into 2011, the Congress had a series of budget decisions backed up.   That has led to a push and pull syndrome where the GOP has proposed reductions in spending which the democrats (in both the house and senate) have resisted - forcing a series of temporary measures to keep the government in business.
The Washington Examiner calls the strategy "rope-a-dope" and I think that is an apt definition.   They dodge and delay any small steps to reducing spending, which by any reasonable assessment is out of control.  The new GOP majority was elected, in part, to restrain spending and to reduce the non-essentials. They were also elected to begin to control entitlements.  As the Examiner concludes, if they don't show some progress they will be held accountable.

The former Speaker commented in extension of remarks commented that  “Democrats have long fought for fiscal responsibility…”  At the same time she said the democrats had to dig out the deficit that Bush created.  Indeed, our former president contributed mightily to the deficit.  

We cannot get away from the red trend line in the graph unless we begin to work on it conscientiously.  Contrary to the former Speaker's remarks, neither party has shown much interest in solving the problem.

Monday, March 14, 2011

It is three months do you know where your data is?

In December I purchased Carbonite -to do offsite back up of my MacPro.  Offsite backup compresses files so the 2 GIGs of hard drive space I have (which is by no means filled) would require less back up space.  Carbonite promised a safe and reliable backup which was also supposed to be simple.

It is now the middle of March - or three months into this process and I am now 44% backed up.  That is a horrible record.  I will keep you informed of this speedy service.  As I noted in my earlier post on this "service" the support staff is not helpful either.

One of my readers recommended Crashplan.  It looks good from the site and could not be any worse than Carbonite.

Piper Jaffray Data on iPad 2

In many ways the investment firm of Piper Jaffray has become the bible on sales figures of Apple products.  Here is the results of their flash survey from the first day of Apple iPad 2 sales.

I was most surprised by two figures.  First, the distribution of capacities - where the largest size is getting a bit more sales in this version but the 16 gig model certainly has a following.   Second, I am surprised by the mix of 3G to WIFI models.

What could be troubling to PC makers is the data on whether the buyers own a Mac or a PC. From my experience with the iPad I find I use it to replace a lot of things I formerly did on my laptop.

Saturday, March 12, 2011

The iPad 2 - First Notes

OK, so yesterday the iPad 2 came out and many of my readers and friends are wondering if I have one in my hot little hand.   The answer is not yet.

On Thursday night West Coasters had the opportunity to sign into the Apple site and order their new iPads at 1:00 AM.  I set my alarm but was tired and did not notice I set the alarm to PM not AM.  So I did not order until about 3:00 AM.  I ordered a 64 GIG (most people are) 3G model.   By the time I was able to order the wait time for delivery - I wanted to get mine engraved - had jumped to about 7 business days - that means a delivery date of about March 22.  When I woke up about 6:45 I logged in again and the wait time was 2-3 weeks.

The preliminary first day sales numbers were between 500-600,000 units. That is about double what the first version sold;  pretty impressive.  According to the Piper Jaffrey survey - 70% of the buyers were new to the platform - but there was also data that many of the buyers were upgrading.  There was some commentary in the trades press that the release would stop the Motorola Xoom in its tracks.   The Xoom has both Flash and Android software.  I have not felt deprived of Flash but I have been interested in watching the Android platform develop on phones - it seems quite nifty.

In the afternoon I went to the USC Bookstore - which got the actual machines in at 5 PM - so got to hold one in my hand.  The front camera is not great - low light capabilities seem to be more limited than the iPhone (by a lot) - but the heft of it is noticeably different than Gen 1.   I suspect that it will be more comfortable to read with - although I found the original model quite good.   The Bookstore did not have a cover (which I bought in my order) so I will be interested in seeing how that works.  I bought the leather one.  The White version of the iPad looks great (although I bought the black).

When I get one in my hot little hand I will offer a more substantive review.

Friday, March 11, 2011

Governmental Art/Humanities/Broadcasting is to Art/Humanities/Broadcasting as Chickens are to Watermelons

Among the priorities of the budget cutting bill first proposed in the house are the elimination of subsidies for the National Endowments of the Arts and the Humanities and for the Corporation for Public Broadcasting.  When it was first started (1966)the National Endowment for the Arts had a budget of just under $3 million.  It now has a budget of about $167 million. The Humanities endowment is a bit larger at $171.  The Corporation for Public Broadcasting gets $460 million.  While the final bill is probably not going to go that far, the question is should it?

The argument for all three activities is fundamentally one on merit goods.  A merit good, in the formal language of public finance, is one which would not be produced in enough quantity absent governmental support.   From my perspective that has always been a very slippery slope.

For me there are two questions.  Absent governmental support would the things like the arts and humanities or "intelligent" discussion of events and trends be present.?  The answer to that one is simple.  Since the creation of NPR the variety of programming has exploded.  The proliferation of the arts has been significant in both depth and breadth.  Ditto potentially for the humanities - although admittedly that may be harder to demonstrate.

But then the second question is does governmental support add something that absent the support would be lost to society.  Here the advocates for governmental funding try to make a case.  But from my perspective it is hard to demonstrate that having several hundred million applied to broadcasting, the arts and humanities has actually enriched the mix.   More importantly there is the moral hazard that comes with any governmental funding - does it have the potential to distort the provision of that good or service?  In this, there is pretty clear evidence that the addition of funding has done little if anything to enhance and may well have impeded truly innovative activity.

A Washington Examiner column today summed up the question quite well.  We consume a lot of things that government does not subsidize.  The History Channel, ESPN, even CNN - in essence I do not care whether they have a particular ideological focus (as I believe CNN and the History Channel often do) but having neutrality does not necessarily merit public funding.

The opposite side of the case is also true.  While the NEH and NEA and CPB can demonstrate some positive effects of governmental funding, it is hard to imagine that elimination of that very small percentage of support - either for public broadcasting, or the arts or the humanities - would mean elimination of the function.  It should be about choices and we should choose to defund all three.

Tuesday, March 08, 2011

The Ultimate Nanny Stater

In Article 2, Section 1 of the California Constitution it states that "All political power is inherent in the people. Government is instituted for their protection, security, and benefit, and they have the right to alter or reform it when the public good may require." That is a pretty clear statement about the role of the people in making decisions that are important to government and society. When that language was revised in the 1911 Constitution it was with the express desire to remind the political class that their jobs were subject to review.

We are a couple of days away from the self imposed deadline to allow the voters of California to vote on whether to extend taxes that were imposed a couple of years ago. There is plenty of evidence that at least a couple of GOP members in both houses have tried to think about things that could be traded in exchange for allowing the voters to exercise their Constitutional responsibility. If they negotiated in earnest they might get significant pension reform (in a state where conservative estimates suggest our public system is a couple of billion out of whack), or adjustments in programs that seem wasteful, or more accountability or even a hard spending cap.

But the man pictured at the left doesn't want the voters to express their collective opinion. Grover Norquist is the head of Americans for Tax Reform (in Washington, D.C.). He has helped to impede those discussions because many of the GOP members fear the kinds of retribution he has threatened even if they simply allow a vote on taxes. Ultimately, the goal for all Californians should be to get the budget under control, to bring some more rational decision making on how we spend dough in the state government. But Mr. Norquist thinks we are able to make good decisions and so perpetuates California as the Nanny State.

Monday, March 07, 2011


For the first time in our marriage we are without an animal in the house.  A couple of years ago we lost our dog Molly to cancer.  Then we lost our cat Teddy to old age.  But all along there was Little.   By the time we put her down this morning she was deaf and blind in one eye. She was no longer able to clean herself adequately so the hair on her back was matted. She was 24 years old - based on most conversion charts that made her about 112 in cat years.  But even with all those infirmities (and a few more I did not mention) she was an important part of our life.

A continuing theme

Last week there was a renewal of a debate that is always present when thinking about higher education.   This time it was between Bill Gates and Steve Jobs.  But seventy years ago it was between a Mexican government official and a Mexican scholar.

The debate is about what purpose should higher education serve.   The focus is how much should the state's needs be a goal for higher education.   Antonio Caso and his opponent argued about it.  His opponent suggested that all of higher education should be an instrument of state policy.  If the government was socialist then the institutions should teach socialist principles.  Caso argued that was nonsense - higher education should attempt to discover knowledge and expand human capacities.

Gate's remarks to the National Governor's Association were a bit less expansive than Caso's opponent but they landed on the need to tie goals in higher education to state goals.  Gates commented "The amount of subsidization is not that well-correlated to the areas that actually create jobs in the state -- that create income for the state.  Now, in the past it felt fine to just say, 'OK, we’re over all going to be generous with this sector,' ” he continued. “But in this era, to break down and really say, ‘What are the categories that help fill jobs and drive that state economy in the future?’ -- you’ll find that it’s not across the board in terms of everything that the state subsidizes in higher education.”

When Jobs participated in the announcement of the iPad2 he offered a much broader theme, which mirrors his commencement remarks at Stanford in 2005. (The link to the video is presented in the link.)   In that address he described three opportunities he had in life where things took a wrong turn and yet he benefitted from the event.  In the announcement about the new iPad he commented that Apple's DNA required " technology married with liberal arts, married with the humanities, that yields us the result that makes our heart sing and nowhere is that more true than in these post-PC devices"

Ultimately, from my perspective, higher education needs to pay attention to what is important in society - it needs to be cognizant that its graduates must become employed.  At the same time if its graduates are simply tools of their professions then both the graduates and society are made poorer.   

Saturday, March 05, 2011

Tijuana and Daily Life

On Thursday I visited one of our affiliate universities in Tijuana.  The University is about to celebrate its fiftieth anniversary - which is relatively old for a Mexican private university.  It is among the best universities in Mexico.   They've spent the last several years working toward American accreditation - and I have every confidence that they will be granted that status in the next few months.

I was struck with two impressions beyond the very positive impressions of the university.  First, although the link between San Diego and Tijuana is among the most vibrant economic relationships of two cities across the border, it is severely constrained by the border system back into the US.  My host got me back to the airport in San Diego early because the act of crossing the border can be quite variable.  We got across in 90 minutes but she told me that the wait can often be three hours or longer.  Thus, for people who work in San Diego, the daily commute can be quite uncertain.  And thousands of people go back and forth daily.  There is no direct flight from California to Tijuana - one could get there by flying first to Mexico City - but that seems absurd.

Second, as I have had in every visit to Mexico in the last year, we talked a lot about security.  Tijuana has had some very violent incidents in the last two years relating to the drug wars.  Many of my friends in California wondered why I would go to Tijuana.  But one of my host summed it up quite clearly.  She said, every morning I get up, pray a bit (which she would do because she is Catholic) and then go to work.  She said there are places in the city that she does not go - like any large city.  But she clearly had decided not to let the situation deter her from being a productive professional.    She also seemed resigned to the fact that the border crossing was just one of those costs of daily life - which were not going to deter her from advancing the knowledge and reputation of her university.   For me that was an inspiration.

Wednesday, March 02, 2011


One of the oddest things about this part of the economic cycle has been how slow the recovery has been.  Even with massive (one might even call  them monumental) amounts of infusions of liquidity the unemployment rate remains well above 9% and the level of under-employment (which many think is a better indicator of the state of the economy) is even higher.

Here might be part of the explanation.  Of all the mortgages in the country - better than one in five have negative equity.   In five states the numbers are all above 31% (Nevada - 66.5%, Arizona - 48.6%, Florida - 45.5%, Michigan - 37.6%, and California - 31.6%).   Normally, as we go out of a recession, housing helps to lead the way but the overhang from the excesses of Fannie and Freddie and CDOs has put a damper on that by a lot.  Consider that the net effect of all these changes has been to wipe out six years of price appreciation.   That means that when workers want to move from one area in the country where there are no jobs to one where there are jobs, the consideration of that loss of equity limits the abilities of families to make decisions based on mobility.

de Tocqueville Comes True

Alexis de Tocqueville came to the US in the 1840s and as a result of the trip and the observations he gathered wrote a stunning book called Democracy in America.  In the book he commented that one of the risks of the new American system was the potential that the system could evolve negatively if a group discovered that they could get someone else to pay for their requests.

It seems to me that is exactly what the fight in Wisconsin is all about.  A fight by the way that is replicated many times over in other states, including California.  We've set up a system where employees bargain against no one.  Politicians have a natural propensity to kick the can down the road and thus offer huge concessions to their employees (who they are supposedly bargaining with) that do not have to be paid immediately.   Thus, provisions like support of pensions and health benefits can be added, with the politician knowing that the bill will not come due while the politician is serving.  Thus, in the fat times of the early part of the last decade, when market returns were up, wild assumptions about both long term returns on portfolios and long term costs of benefits were accepted as gospel.   What is worse, there is an extra incentive for politicians because they can reap huge contributions to help their own aspirations go forward.  And, even better, because of agency shop, those contributions are involuntarily extracted from the employees.   It has all the elements of a perfect storm.

The model was replicated from benefits programs like Social Security where for generations politicians have offered benefits far in excess of what the system could bear, simply on the notion that the bill would come due later.   Well, now the bills are coming due.

While Democracy in America was insightful on defining the problem we now face, it was not very good at thinking up solutions.  But Federalist #51 has a pretty good way to do that.  To wit  - "But the great security against a gradual concentration of the several powers in the same department, consists in giving to those who administer each department the necessary constitutional means and personal motives to resist encroachments of the others. The provision for defense must in this, as in all other cases, be made commensurate to the danger of attack. Ambition must be made to counteract ambition. The interest of the man must be connected with the constitutional rights of the place. It may be a reflection on human nature, that such devices should be necessary to control the abuses of government. But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions."